EXHIBIT 2.1
-------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BETWEEN
SIMEX INC.,
SIMEX ACQUISITION CO.
AND
IWERKS ENTERTAINMENT, INC.
-------------------------------------------------------------------------------
AUGUST 31, 2001
TABLE OF CONTENTS
PAGE
Article 1. THE MERGER..........................................................1
1.1 The Merger.......................................................1
1.2 Closing..........................................................1
1.3 Effective Time...................................................2
1.4 Effects of the Merger............................................3
1.5 Certificate of Incorporation and By-Laws.........................3
1.6 Directors and Officers...........................................3
Article 2. EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE COMPANY
AND ACQUISITION CO.; EXCHANGE OF CERTIFICATES.......................3
2.1 Effect on Capital Stock..........................................3
2.2 Exchange of Certificates.........................................5
Article 3. REPRESENTATIONS AND WARRANTIES......................................7
3.1 Representations and Warranties of the Company....................7
3.2 Representations and Warranties of the Parent and
Acquisition Co..................................................24
Article 4. COVENANTS RELATING TO CONDUCT OF BUSINESS..........................26
4.1 Conduct of Business.............................................26
4.2 No Solicitation by the Company..................................30
Article 5. ADDITIONAL AGREEMENTS..............................................32
5.1 Preparation of the Proxy Statement; Stockholders Meeting........32
5.2 Access to Information; Confidentiality..........................33
5.3 Commercially Reasonable Efforts.................................33
5.4 Fees and Expenses...............................................34
5.5 Public Announcements............................................34
5.6 Rights Agreement................................................35
5.7 Director's and Officer's Insurance and Indemnification..........35
Article 6. CONDITIONS PRECEDENT...............................................36
6.1 Conditions to each Party's Obligation to Effect the Merger......36
6.2 Conditions to Obligation of the Parent and Acquisition Co.......36
6.3 Conditions to Obligation of the Company.........................37
Article 7. TERMINATION, AMENDMENT AND WAIVER..................................38
7.1 Termination.....................................................38
7.2 Effect of Termination...........................................39
7.3 Amendment.......................................................40
7.4 Extension; Waiver...............................................40
Article 8. GENERAL PROVISIONS.................................................40
8.1 Nonsurvival of Representations and Warranties...................40
8.2 Notices.........................................................40
8.3 Definitions.....................................................41
8.4 Interpretation..................................................44
8.5 Counterparts....................................................44
8.6 Entire Agreement; No Third-Party Beneficiaries..................44
8.7 Governing Law...................................................45
8.8 Assignment......................................................45
8.9 Consent to Jurisdiction.........................................45
8.10 Waiver of Jury Trial............................................45
8.11 Attorney's Fees.................................................46
8.12 Enforcement.....................................................46
8.13 Severability....................................................46
Page ii
AGREEMENT AND PLAN OF MERGER dated as of August 31, 2001, between SimEx
Inc., an Ontario corporation (the "PARENT"), SimEx Acquisition Co., a Delaware
corporation ("ACQUISITION CO."), and Iwerks Entertainment, Inc., a Delaware
corporation (the "COMPANY").
WHEREAS, upon the terms and subject to the conditions of this Agreement
and in accordance with the Delaware General Corporation Law ("DGCL"), the Parent
and the Company will enter into a business combination transaction pursuant to
which Acquisition Co. will merge with and into the Company (the "MERGER");
AND WHEREAS, the Board of Directors of the Parent (i) has determined
that the Merger is consistent with and in furtherance of the long-term business
strategy of the Parent and fair to, and in the best interest of, the Parent and
its stockholders and (ii) has approved this Agreement, the Merger and the other
transactions contemplated by this Agreement;
AND WHEREAS, the Board of Directors of the Company (i) has determined
that the Merger is consistent with and in furtherance of the long-term business
strategy of the Company and fair to, and in the best interest of, the Company
and its stockholders and (ii) has approved this Agreement, the Merger and the
other transactions contemplated by this Agreement;
AND WHEREAS, the Parent, Acquisition Co. and the Company desire to make
certain representations, warranties, covenants and agreements in connection with
the Merger and also to prescribe various conditions to the Merger.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, the Parent, Acquisition Co. and the Company hereby agree as follows:
ARTICLE 1.
THE MERGER
1.1 THE MERGER
Upon the terms and subject to the conditions set forth in this
Agreement, and in accordance with the DGCL, Acquisition Co. shall be merged with
and into the Company at the Effective Time (as defined in Section 1.3).
Following the Effective Time, the separate corporate existence of Acquisition
Co. shall cease and the Company shall continue as the surviving corporation (the
"SURVIVING CORPORATION") and shall succeed to and assume all the rights and
obligations of Acquisition Co. in accordance with the DGCL.
1.2 CLOSING
(a) Upon the terms and subject to the conditions set forth in this
Agreement, the closing of the Merger (the "CLOSING") shall take place at the
offices of Torys, 000 Xxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx, 00000 at 10:00 a.m., New
York time, on a date to be specified by the parties to this Agreement (the
"PARTIES"), which (subject to satisfaction or waiver of the conditions set forth
in Article 6) shall be no later than the second business day after satisfaction
or waiver of the conditions set forth in Article 6 or such other date and time
as mutually agreed to by the Parties to the Agreement (the "CLOSING DATE").
(b) At the Closing, the Company shall have delivered or caused to be
delivered to the Parent and Acquisition Co., in each case in form and substance
acceptable to the Parent acting reasonably and in good faith:
(i) the Certificate of Merger (as hereinafter defined), duly
executed by the Company;
(ii) a certificate of the Secretary of the Company certifying as
of the Closing Date (A) a true and complete copy of the organizational
documents of the Company certified as of a recent date by the Office of
the Secretary of State of the State of Delaware (the "DELAWARE SECRETARY
OF STATE"), (B) a certificate of each appropriate Secretary of State or
other officer certifying the good standing of the Company in its state
of incorporation and all states in which it is qualified to do business,
(C) a true and complete copy of the resolutions constituting the Board
Approval and the Stockholder Approval (each as hereinafter defined) and
(D) incumbency matters;
(iii) a resignation letter of each of the directors of the
Company, resigning solely in their capacity as directors of the Company,
each dated effective as of the Closing;
(iv) (A) a consent and/or agreement executed by each holder of
an outstanding Option granted under the 0001 Plan (as defined in Section
3.1(c)) or outside the option plans of the Company which shall give
effect to the requirements of Section 2.1(e), (B) a resolution by the
plan administrator under the 1994 Plan (as defined in Section 3.1(c))
which shall give effect to the requirements of Section 2.1(e) and (C) a
certificate that the Company shall have taken all steps necessary to
duly terminate the other outstanding Options and the outstanding
Warrants (other than the Trust Warrants, as defined in Section 2.1(e))
according to their terms and shall have complied with the terms of the
Trust Warrants to give effect to the requirements of Section 2.1(e); and
(v) such other documents as the Parent or its counsel may
reasonably request for the purpose of facilitating the consummation of
the transactions contemplated herein.
1.3 EFFECTIVE TIME
Upon the terms and subject to the conditions set forth in this
Agreement, as soon as practicable after the Closing and on the Closing Date, the
Parties shall file with the Delaware Secretary of State a certificate of merger
and such other documents as may be required by the DGCL in order for the merger
to become effective (in any such case, the "CERTIFICATE OF MERGER") duly
prepared, executed and acknowledged by the Parties, as applicable. The Merger
Page 2
shall become effective upon the filing of the Certificate of Merger with the
Delaware Secretary of State unless the Parent and the Company agree to a
subsequent date or time and specify such date and time in the Certificate of
Merger (the time the Merger becomes effective being hereinafter referred to as
the "EFFECTIVE TIME").
1.4 EFFECTS OF THE MERGER
The Merger shall have the effects set forth in Section 259 of the DGCL.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time all the property, rights, privileges, powers and franchises of
the Company and Acquisition Co. shall be vested in the Surviving Corporation,
and all debts, liabilities and duties of the Company and Acquisition Co. shall
become the debts, liabilities and duties of the Surviving Corporation.
1.5 CERTIFICATE OF INCORPORATION AND BY-LAWS
(a) The Certificate of Incorporation of Acquisition Co., as in effect
immediately prior to the Effective Time, shall be the certificate of
incorporation of the Surviving Corporation until thereafter changed or amended
as provided therein or by applicable law, except that Article I thereof shall be
amended to read in its entirety as follows: "The name of the Corporation is
Iwerks Entertainment, Inc.".
(b) The By-laws of Acquisition Co., as in effect immediately prior to
the Effective Time, shall be the By-laws of the Surviving Corporation until
thereafter changed or amended as provided therein or by applicable law, except
that the By-laws shall be amended to reflect that the name of the Surviving
Corporation shall be "Iwerks Entertainment, Inc.".
1.6 DIRECTORS AND OFFICERS
The directors of Acquisition Co. immediately prior to the Effective Time
shall be the initial directors of the Surviving Corporation, to serve until the
earlier of their resignation or removal or until their respective successors are
duly elected and qualified. The officers of Acquisition Co. immediately prior to
the Effective Time shall be the initial officers of the Surviving Corporation,
to serve until the earlier of their resignation or removal or until their
respective successors are duly elected and qualified.
ARTICLE 2.
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE COMPANY
AND ACQUISITION CO.; EXCHANGE OF CERTIFICATES
2.1 EFFECT ON CAPITAL STOCK
As of the Effective Time, by virtue of the Merger and without any
further action on the part of the holder of any shares of capital stock of the
Company, the Parent or Acquisition Co.:
(a) CANCELLATION OF TREASURY STOCK. Each share of common stock, par
value $0.001 per share, of the Company ("COMPANY COMMON STOCK") that is directly
owned by the
Page 3
Company (as treasury stock) immediately prior to the Effective Time shall
automatically be canceled and shall cease to exist, and no consideration shall
be delivered in exchange therefor.
(b) CONVERSION OF ACQUISITION CO. COMMON STOCK. Each issued and
outstanding share of common stock of Acquisition Co. shall remain outstanding as
one fully paid and non-assessable share of common stock of the Surviving
Corporation.
(c) CONVERSION OF COMPANY COMMON STOCK. Subject to Section 2.1(d), each
issued and outstanding share of Company Common Stock (other than shares to be
canceled in accordance with Section 2.1(a)) shall be converted into the right to
receive, immediately prior to the Effective Time, a ratable portion of
$2,250,000 (the "MERGER CONSIDERATION") to be equal to the quotient obtained by
dividing (i) $2,250,000 by (ii) the number of outstanding shares of Company
Common Stock immediately prior to the Effective Time; by way of example,
assuming that a total of 3,554,903 shares of Company Common Stock are
outstanding and including the due exercise of "in-the-money" Options to purchase
105,000 shares of Company Common Stock and the termination of all other
outstanding Options and Warrants (other than the Trust Warrants, as defined in
Section 2.1(e)), such ratable portion would be $0.633034 per share. At the
Effective Time, all such shares of Company Common Stock shall no longer be
outstanding and shall automatically be canceled and shall cease to exist, and
each holder of a certificate representing any such shares shall cease to have
any rights with respect thereto, except the right to receive such holder's
ratable portion of the Merger Consideration.
(d) APPRAISAL RIGHTS. Notwithstanding anything in this Agreement to the
contrary, shares of Company Common Stock issued and outstanding immediately
prior to the Effective Time that are held by any holder who (i) has not voted
such shares of Company Common Stock in favor of the Merger at the Stockholders
Meeting (as defined in Section 5.1(b)), (ii) is entitled to demand and properly
demands appraisal of such shares pursuant to Section 262 of the DGCL ("SECTION
262") and complies in all respects with the provisions of Section 262 and (iii)
has not effectively withdrawn or lost the right to demand relief as a dissenting
stockholder under the DGCL as of the Effective Time (the "APPRAISAL SHARES"),
shall not be converted into the right to receive the Merger Consideration as
provided in Section 2.1(c), but instead such holder of Appraisal Shares shall
only be entitled to payment of the fair value of such shares in accordance with
the provisions of Section 262. At the Effective Time, all Appraisal Shares shall
automatically be canceled and shall cease to exist or be outstanding, and each
holder of Appraisal Shares shall cease to have any rights with respect thereto,
except such rights as are granted under Section 262. Notwithstanding the
foregoing, if any such holder shall fail to perfect or otherwise shall waive,
withdraw or lose the right to appraisal under Section 262 or a court of
competent jurisdiction shall determine that such holder is not entitled to the
relief provided by Section 262, then the rights of such holder under Section 262
shall cease to exist and such Appraisal Shares shall be deemed to have been
converted at the Effective Time into, and shall have become, the right to
receive such holder's ratable portion of the Merger Consideration as provided in
Section 2.1(c). The Company shall serve prompt notice to the Parent of any
demands for appraisal of any shares of Company Common Stock, and the Parent
shall have the right to participate in and, subject to applicable law, direct
all negotiations and proceedings with respect to such demands. The Company shall
not, without the prior written consent of Parent,
Page 4
make any payment with respect to, or settle or offer to settle, any such
demands, or agree to do any of the foregoing.
(e) OPTIONS AND WARRANTS. Each outstanding Option or Warrant (other than
the Warrants issued to the Guber Family Trust and the Xxxx and Xxxx Xxxxxxxxx
Living Trust (collectively, the "TRUST WARRANTS")), shall, immediately prior to
the Effective Time, automatically be exercised or terminated pursuant to the
terms of the applicable Option or Warrant and, at the Effective Time, shall
cease to exist, and each holder thereof shall cease to have any rights with
respect thereto, except the right to receive such holder's ratable portion of
the Merger Consideration provided that any such Option or Warrant was duly
exercised (including payment to the Company of the applicable exercise price)
prior to the Closing Date. Each outstanding Trust Warrant shall, at the
Effective Time, automatically be converted into the right to receive, upon
exercise thereof in accordance with its terms, such ratable portion of the
Merger Consideration that a holder of that number of shares of Company Common
Stock issuable upon exercise of such Trust Warrants immediately prior to the
Merger would be entitled to receive.
2.2 EXCHANGE OF CERTIFICATES
(a) PAYING AGENT. Prior to the Effective Time, the Parent shall
designate a bank or trust company to act as paying agent for payment of the
Merger Consideration (the "PAYING AGENT"); and on or prior to the Effective
Time, the Parent shall, or cause the Surviving Corporation to, deposit with the
Paying Agent cash in the amount of the Merger Consideration. Subject to Section
2.2(d) hereof, pending distribution pursuant to Section 2.2(b) hereof of the
cash deposited with the Paying Agent, such cash shall be held in trust for the
benefit of the holders of shares of Company Common Stock issued and outstanding
prior to the Effective Time cancelled in the Merger and such cash shall not be
used for any other purposes; provided, however, that any cash deposited with the
Paying Agent which has not been distributed pursuant to Section 2.2(b) hereof
two years after the Effective Time shall be turned over to the Parent and
provided, further, that any and all interest earned at any time on the cash
deposited with the Paying Agent shall be turned over to the Parent.
(b) EXCHANGE PROCEDURE. As soon as reasonably practicable after the
Effective Time, the Paying Agent shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Company Common Stock whose shares were
converted into the right to receive such holder's ratable portion of the Merger
Consideration (the "CERTIFICATES"), (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates held by such person shall pass, only upon the proper delivery of
the Certificates to the Paying Agent and shall be in a form and have such other
provisions as the Parent may reasonably specify) and (ii) instructions as
specified by the Paying Agent or the Parent for use in effecting the surrender
of the Certificates in exchange for the Merger Consideration. Upon surrender of
a Certificate for cancellation to the Paying Agent or to such other agent or
agents as may be appointed by the Parent, together with such letter of
transmittal, duly completed and executed, and such other instructions, the
holder of such Certificate shall be entitled to receive in exchange therefor,
and the Paying Agent shall promptly distribute to such holder, the amount of
cash into which the
Page 5
shares of Company Common Stock theretofore represented by such Certificate shall
have been converted pursuant to Section 2.1(c), and the Certificate so
surrendered shall forthwith be canceled. In the event of a transfer of ownership
of shares of Company Common Stock that is not registered in the transfer records
of the Company, payment may be made to a person other than the person in whose
name the Certificate so surrendered is registered, if such Certificate shall be
properly endorsed or otherwise be in proper form for transfer and the person
requesting such payment shall pay any transfer or other taxes required by reason
of the payment to a person other than the registered holder of such Certificate
or establish to the satisfaction of the Parent that such tax has been paid or is
not applicable. Until surrendered as contemplated by this Section 2.2(b), each
Certificate shall be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender a ratable portion of the Merger
Consideration, without interest, into which the shares of Company Common Stock
theretofore represented by such Certificate shall have been converted pursuant
to Section 2.1(c). No interest will be paid or will accrue on the cash payable
upon the surrender of any Certificate.
(c) NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. All cash paid
upon the surrender of Certificates in accordance with the terms of this Article
2 shall be deemed to have been paid in full satisfaction of all rights
pertaining to the shares of Company Common Stock theretofore represented by such
Certificates. At the close of business on the day of the Effective Time, the
stock transfer books of the Company shall be closed, and there shall be no
further registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of Company Common Stock that were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation or the Paying Agent for
any reason, they shall be canceled and exchanged as provided in this Article 2.
(d) NO LIABILITY. None of the Parent, Acquisition Co., the Company or
the Paying Agent shall be liable to any person in respect of any cash delivered
to a public official pursuant to any applicable abandoned property, escheat or
similar law. If any Certificate shall not have been surrendered prior to seven
years after the Effective Time (or immediately prior to such earlier date on
which any Merger Consideration would otherwise escheat to or become the property
of any Governmental Entity (as defined in Section 3.1(d)), the Merger
Consideration shall, to the extent permitted by applicable law, become the
property of the Surviving Corporation, free and clear of all claims or interest
of any person previously entitled thereto.
(e) LOST CERTIFICATES. If any Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Parent, the posting by such person of a bond in such reasonable amount as
the Parent may direct as indemnity against any claim that may be made against it
with respect to such Certificate, the Paying Agent will pay to the holder of
such lost, stolen or destroyed Certificate, such holder's ratable portion of the
Merger Consideration.
Page 6
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Parent and Acquisition Co. as
follows:
(a) ORGANIZATION, STANDING AND CORPORATE POWER. Each of the Company and
its subsidiaries (as defined in Section 8.3(a)) is a corporation or other legal
entity duly organized, validly existing and in good standing under the laws of
the jurisdiction in which it is organized and has the requisite corporate or
other power, as the case may be, and authority to carry on its business as now
being conducted. Each of the Company and its subsidiaries is duly qualified or
licensed to do business and is in good standing in each jurisdiction in which
the nature of its business or the ownership or leasing of its properties or
operations makes such qualification or licensing necessary, other than in such
jurisdictions where the failure to be so qualified or licensed or to be in good
standing, individually or in the aggregate, would not reasonably be expected to
have a material adverse effect (as defined in Section 8.3(a)) on the Company.
The Company has delivered to the Parent, prior to the execution of this
Agreement, complete and correct copies of (i) its Certificate of Incorporation
and By-laws, in each case as amended to the date hereof and (ii) all the
existing minutes of the meetings of its stockholders, its Board of Directors and
each committee of its Board of Directors held since its incorporation or
organization. No other decisions or resolutions of the stockholders, Board of
Directors or committees of the Board of Directors of the Company, other than as
disclosed in the minutes that have been delivered to the Parent or that are
reflected in the Company SEC Documents (as defined in Section 3.1(e)), would
reasonably be expected to be material to an intending purchaser of the Company.
(b) SUBSIDIARIES. Section 3.1(b) of the Disclosure Letter delivered by
the Company to the Parent prior to the execution of this Agreement (the
"Disclosure Letter") sets forth (i) a list of the subsidiaries of the Company,
(ii) to the knowledge of the Company, the issued and outstanding shares of
capital stock of, or other equity or voting interests in, each such subsidiary
and (iii) to the knowledge of the Company, the registered and beneficial holders
of such shares or other equity or voting interests. All the outstanding shares
of capital stock of, or other equity or voting interests in, each such
subsidiary have been validly issued and are fully paid and nonassessable and are
owned, directly or indirectly, by the Company, free and clear of all mortgages,
pledges, assessments, claims, liens, charges, security interests and other
encumbrances of any kind or nature whatsoever (collectively, "LIENS"). Except
for the capital stock of, or other equity or voting interests in, its
subsidiaries, the Company does not own, directly or indirectly, any capital
stock of, or other equity or voting interests in, any person. No subsidiaries of
the Company carry on an active business, other than Discovery Theatre Limited
Partnership, a California limited partnership, and the partners of such
partnership which are Discovery Theatres San Francisco Corp., a California
corporation, and Cinetropolis Management, Inc., a California corporation. None
of the Company's subsidiaries have any material liabilities or obligations.
Neither the Certificate of Incorporation and By-Laws (or other organizational
documents), nor the minutes of the meetings of the stockholders and Board of
Page 7
Directors of any subsidiary of the Company would reasonably be expected to be
material to an intending purchaser of the Company.
(c) CAPITAL STRUCTURE.
(i) The authorized capital stock of the Company consists of
50,000,000 shares of Company Common Stock and 1,000,000 shares of
preferred stock, par value $0.001 per share ("COMPANY PREFERRED STOCK").
As of the date hereof, (A) 3,540,911 shares of Company Common Stock are
issued and outstanding, (B) 91,600 shares of Company Common Stock are
issued and held by the Company in its treasury and (C) no shares of
Company Preferred Stock are issued and outstanding, or issued and held
by the Company in its treasury. Section 3.1(c)(i) of the Disclosure
Letter which will be delivered to the Parent within 5 business days
hereof sets forth the number of shares of Company Common Stock held by
each registered holder thereof as of August 31, 2001.
(ii) As of the date of this Agreement and regarding options or
stock appreciation rights to purchase shares of Company Common Stock
("OPTIONS"):
(A) Options to purchase 6,718 shares of Company Common
Stock, and no stock appreciation rights, are issued and
outstanding pursuant to the Amended and Restated 1987
Stock Option, Purchase and Appreciation Rights Plan (the
"1987 STOCK PLAN");
(B) Options to purchase 35,397 shares of Company Common
Stock, and no stock purchase rights, are issued and
outstanding pursuant to the 1993 Stock Incentive Plan
(the "1993 STOCK PLAN");
(C) Options to purchase 257,706 shares of Company Common
Stock are issued and outstanding pursuant to the 1994
Stock Incentive Plan (the "1994 STOCK Plan");
(D) Options to purchase 71,250 shares of Company Common
Stock are issued and outstanding pursuant to the 1998
Non-Employee Directors Stock Option Plan (the "1998
NON-EMPLOYEE DIRECTORS STOCK PLAN");
(E) Options to purchase 2,858 shares of Company Common
Stock are issued and outstanding pursuant to the 0001
Stock Option Plan (the "0001 STOCK PLAN");
(F) no options are issued and outstanding pursuant to
the Omni Stock Option Plan; and
(G) Options to purchase 18,096 shares of Company Common
Stock are issued and outstanding on a stand alone basis
and not pursuant to any stock option plan.
Page 8
Section 3.1(c)(ii) of the Disclosure Letter which will be delivered to
the Parent within 5 business days hereof sets forth, as of August 31,
2001, for each issued and outstanding Option, the grant date, the number
of shares of Company Common Stock purchasable thereunder, the vesting
schedule, the exercise price, and the holder thereof.
(iii) As of the date of this Agreement and regarding warrants to
purchase shares of Company Common Stock ("WARRANTS"), warrants to
purchase 451,429 shares of Company Common Stock are issued and
outstanding. Section 3.1(c)(iii) of the Disclosure Letter sets forth,
for each issued and outstanding Warrant, the issue date, the number of
shares of Company Common Stock purchasable thereunder, the exercise
price, and the holder thereof.
(iv) Each outstanding share of Company Common Stock has attached
to it a right ("RIGHT") entitling the holder to purchase 1/100th of a
share of Series A Company Preferred Stock pursuant to the Rights
Agreement dated as of May 22, 1995, as amended on July 15, 1997, July
16, 1999, September 12, 2000 and October 24, 2000 and as will be amended
as provided by this clause (iv) (the "RIGHTS AGREEMENT") between the
Company and U.S. Stock Transfer Corporation, the Rights Agent. The
Company shall enter into an amendment to the Rights Agreement within two
business days of the date hereof. Such amendment will provide that (A)
no "Distribution Date" (as such term is defined in the Rights Agreement)
will occur as a result of the approval, execution or delivery of this
Agreement or the consummation of the Merger and the other transactions
contemplated hereby, (B) neither the Parent nor Acquisition Co. will be
an "Acquiring Person" (as such term is defined in the Rights Agreement)
as a result of entering into, performing the terms of or consummating
the transactions contemplated by this Agreement and (C) the Rights
Agreement will otherwise be inapplicable to the Parent and Acquisition
Co. while this Agreement is in effect.
(v) All outstanding shares of Company Common Stock are, and all
shares that may be issued pursuant to the exercise of Options or
Warrants or otherwise prior to the Effective Time will be, when issued
in accordance with the terms thereof, duly authorized, validly issued,
fully paid and nonassessable and not subject to preemptive rights.
Except as set forth in Section 3.1(c)(v) of the Disclosure Letter, there
are no agreements to which the Company is a party or by which it is
bound with respect to the voting (including voting trusts or proxies),
registration under the Securities Act, or sale or transfer (including
agreements relating to pre-emptive rights, rights of first refusal,
co-sale rights or "drag-along" rights) of any securities of the Company
or its subsidiaries. To the actual knowledge of the officers and
directors of the Company, there are no agreements among other parties,
to which the Company is not a party and by which it is not bound, with
respect to the voting (including voting trusts or proxies) or sale or
transfer (including agreements relating to rights of first refusal,
co-sale rights or "drag-along" rights) of any securities of the Company
or its subsidiaries.
Page 9
(vi) Except as set forth in Section 3.1(c)(vi) of the Disclosure
Letter, there are no Contracts (as defined in Section 3.1(d)) of any
kind to which the Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries is bound obligating the
Company or any of its subsidiaries to (A) issue, grant, deliver or sell,
or cause to be issued, granted, delivered or sold, additional shares of
capital stock of, or securities convertible into, or exchangeable or
exercisable for, shares of capital stock of, or other equity or voting
interests in, the Company or any of its subsidiaries, (B) repurchase,
redeem or otherwise acquire any shares of capital stock of, or other
equity or voting interests in, the Company or any of its subsidiaries or
(C) vote or dispose of any shares of the capital stock of, or other
equity or voting interests in, any of its subsidiaries.
(vii) As of the date of this Agreement and except as disclosed
in the March Financial Statements (as defined in Section 3.1(e)), there
is no outstanding indebtedness for borrowed money of the Company and its
subsidiaries and there are no guarantees by the Company or any of its
subsidiaries of indebtedness of third parties for borrowed money.
(d) AUTHORITY; NONCONTRAVENTION.
(i) The Company has the requisite corporate power and authority
to execute and deliver this Agreement and to consummate the transactions
contemplated by this Agreement, subject, in the case of approving this
Agreement and the consummation of the transactions contemplated by this
Agreement, including the Merger, to obtaining the Stockholder Approval
(as defined in (ii) below). The execution and delivery of this Agreement
by the Company and the consummation by the Company of the transactions
contemplated by this Agreement have been duly authorized by all
necessary corporate action on the part of the Company and no other
corporate authorizations or approvals on the part of the Company are
necessary to approve this Agreement or to consummate the transactions
contemplated by this Agreement, subject, in the case of approving this
Agreement and the consummation of the transactions contemplated by this
Agreement, including the Merger, to obtaining the Stockholder Approval.
This Agreement has been duly executed and delivered by the Company and
constitutes a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms subject to
(A) applicable bankruptcy, insolvency, fraudulent transfer and
conveyance, moratorium, reorganization, receivership and similar laws
relating to or affecting the enforcement of the rights and remedies of
creditors generally and (B) principles of equity (regardless of whether
considered and applied in a proceeding in equity or at law).
(ii) The affirmative vote of the holders of a majority of the
outstanding shares of Company Common Stock as of the record date
established for the Stockholders Meeting, voting as a single class, at
the Stockholders Meeting in favor of adopting this Agreement (the
"STOCKHOLDER APPROVAL") is the only vote of
Page 10
the holders of any class or series of the Company's capital stock
necessary to approve and adopt this Agreement or the Merger. The
affirmative vote of the holders of any class or series of the Company's
capital stock, voting as a single class or otherwise, is not necessary
to approve any transaction contemplated by this Agreement (other than
the adoption of this Agreement).
(iii) The Board of Directors of the Company, at a meeting duly
called and held at which all directors of the Company were present, duly
and unanimously adopted resolutions (the "BOARD APPROVAL") including (A)
approving and declaring advisable this Agreement, the Merger and the
other transactions contemplated hereby, (B) declaring that it is in the
best interests of the Company and its stockholders that the Company
enter into this Agreement and consummate the Merger on the terms and
subject to the conditions set forth in this Agreement, (C) declaring
that this Agreement is fair to the Company and its stockholders, (D)
directing that this Agreement be submitted to a vote at a meeting of the
Company's stockholders to be held as promptly as practicable and (E)
recommending that the Company's stockholders adopt this Agreement, which
resolutions have not been subsequently rescinded, modified or withdrawn
in any way except as permitted by Section 4.2(b).
(iv) Except as set forth in Section 3.1(d)(iv) of the Disclosure
Letter, the execution and delivery of this Agreement by the Company and
the consummation of the transactions contemplated hereby and compliance
by the Company with the provisions hereof, do not and will not conflict
with, or result in any violation or breach of, or default (with or
without notice or lapse of time, or both) under, or give rise to a right
of, or result in, termination, cancellation or acceleration of any
obligation or to a loss of a material benefit under, or result in the
creation of any Lien in or upon any of the properties or assets of the
Company or any of its subsidiaries under, or give rise to any increased,
additional, accelerated or guaranteed rights or entitlements under, any
provision of (A) the Certificate of Incorporation or By-laws of the
Company or the Certificate of Incorporation or By-laws (or similar
organizational documents) of any of its subsidiaries, (B) any loan or
credit agreement, bond, debenture, note, mortgage, indenture, guarantee,
lease or other contract, commitment, agreement, instrument, obligation,
binding arrangement, binding understanding, binding undertaking, permit,
franchise or license, whether oral or written (each, including all
amendments thereto, a "CONTRACT"), to which the Company or any of its
subsidiaries is a party or any of their respective properties or assets
is subject or (C) subject to the governmental filings and other matters
referred to in the following paragraph, any statute, law, ordinance,
rule, regulation, judgment, order or decree, in each case, applicable to
the Company or any of its subsidiaries or their respective properties or
assets; OTHER THAN, in the case of clauses (B) and (C), any such
conflicts, violations, breaches, defaults, rights, results, losses,
Liens or entitlements that, individually or in the aggregate, would not
reasonably be expected to have a material adverse effect on the Company.
Page 11
(v) No consent, approval, order or authorization of, or
registration, declaration or filing with, or notice to, any domestic or
foreign (whether national, federal, state, provincial, local or
otherwise) government or any court, administrative agency or commission
or other governmental or regulatory authority or agency, domestic or
foreign (each, a "GOVERNMENTAL ENTITY"), is required to be made or
obtained by the Company or any of its subsidiaries in connection with
the execution and delivery of this Agreement by the Company or the
consummation by the Company of the transactions contemplated hereby or
compliance with the provisions hereof, except for (A) the filing with
the Securities and Exchange Commission (the "SEC") of a proxy statement
relating to the approval by the Company's stockholders of this Agreement
(as amended or supplemented from time to time, the "PROXY STATEMENT")
and such other filings, notices or reports under the Securities Exchange
Act of 1934, as amended (the "EXCHANGE ACT"), as may be required in
connection with this Agreement, the Merger and the other transactions
contemplated hereby, (B) the notifying of the Over the Counter Bulletin
Board of the transactions contemplated hereby, (C) the filing of the
Certificate of Merger with the Delaware Secretary of State and
appropriate documents with the relevant authorities of other states in
which the Company or any of its subsidiaries is qualified to do business
and (D) such other consents, approvals, orders, authorizations,
registrations, declarations, filings or notices the failure of which to
be obtained or made, individually or in the aggregate, would not
reasonably be expected to have a material adverse effect on the Company.
(vi) The approval of the Merger by the Board of Directors of the
Company referred to in paragraph (iii) above constitutes approval of the
Merger for purposes of Section 203 of the DGCL and represents the only
action necessary to ensure that the restrictions on business
combinations (as such term is defined therein) set forth in Section 203
of the DGCL does not and will not apply to the execution or delivery of
this Agreement or the consummation of the Merger and the other
transactions contemplated hereby. To the knowledge of the Company, no
other state takeover or similar statute or regulation is applicable to
this Agreement, the Merger or the other transactions contemplated
hereby.
(e) SEC DOCUMENTS. The Company has filed with the SEC on a timely basis
all reports, schedules, forms, statements and other documents required to be
filed by it since July 1, 1996 as such documents since the time of filing may
have been amended or supplemented (the "COMPANY SEC DOCUMENTS"). No subsidiary
of the Company is required to file with the SEC any report, schedule, form,
statement or other document. As of their respective dates, the Company SEC
Documents complied as to form in all material respects with the requirements of
the Securities Act of 1933, as amended (the "SECURITIES ACT"), or the Exchange
Act, as the case may be, and the rules and regulations of the SEC promulgated
thereunder applicable to such Company SEC Documents, and none of the Company SEC
Documents when filed contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The financial statements of the Company for the fiscal
quarter ended
Page 12
March 31, 2001 filed with the SEC (the "MARCH FINANCIAL STATEMENTS") and all
other financial statements of the Company included in the Company SEC Documents,
including in each case the notes thereto (collectively with the March Financial
Statements, the "SEC FINANCIAL STATEMENTS") comply as to form, as of their
respective dates of filing with the SEC, in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto, have been prepared in accordance with generally
accepted accounting principles ("GAAP") applied on a consistent basis during the
periods involved (except as may be indicated therein or in the notes thereto)
and fairly present in all material respects the consolidated financial position
of the Company as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal recurring year-end audit adjustments and other
adjustments described therein). Except as set forth in the March Financial
Statements and except as arising hereunder, the Company and its subsidiaries
have no liabilities or obligations of any nature (whether absolute, accrued,
asserted or unasserted, contingent or otherwise) that would be required to be
reflected on or reserved against in any SEC Financial Statements that are not
disclosed, reflected or reserved against in such SEC Financial Statements,
except for such liabilities and obligations (i) that have been incurred since
March 31, 2001 in the ordinary course of business, (ii) that, individually or in
the aggregate, would not reasonably be expected to have a material adverse
effect on the Company or (iii) arising as a result of the consummation of the
transactions contemplated by this Agreement.
(f) ABSENCE OF CERTAIN CHANGES OR EVENTS. Since March 31, 2001 and
except as set forth in Section 3.1(f) of the Disclosure Letter and for the
transactions provided for herein, (i) the Company and its subsidiaries have
conducted their respective businesses only in the ordinary course of business
and (ii) there has not been: (A) any state of facts, change, development,
effect, condition or occurrence that, individually or in the aggregate,
constitutes, has had, or would reasonably be expected to have a material adverse
effect on the Company; (B) any declaration, setting aside or payment of any
dividend or other distribution (whether in cash, stock or property) with respect
to any of the Company's or any of its subsidiaries' capital stock; (C) any
purchase, redemption or other acquisition of any shares of capital stock or
other securities of the Company or its subsidiaries or any options, warrants,
calls, or rights to acquire such shares or securities; (D) any split,
combination or reclassification of any of the Company's or any of its
subsidiaries' capital stock or any issuance or the authorization of any issuance
of any other securities in respect of, in lieu of or in substitution for shares
of the Company's capital stock or other securities of the Company or any of its
subsidiaries (other than shares of Company Common Stock issuable upon exercise
of outstanding Options or Warrants); (E) any granting by the Company or any of
its subsidiaries to any current or former director, officer, employee or
consultant (1) of any increase in compensation, bonus or other benefits
(including grants of stock options, stock appreciation rights or other
stock-based awards) or any such granting of any type of compensation or benefits
to any current or former director, officer, employee or consultant not
previously receiving or entitled to receive such type of compensation or
benefit, or (2) of the right to receive any severance or termination pay, or
increases therein (other than in both instances (1) and (2) increases made as
required by law); (F) any material change in financial or tax accounting
methods, principles or practices by the Company or any of its subsidiaries,
except insofar as may have been required by a change in GAAP or applicable law;
(G) any material
Page 13
election with respect to taxes by the Company or any of its subsidiaries or any
settlement or compromise of any material tax liability or refund; or (H) any
revaluation of the Company's or any of its subsidiaries' material assets.
(g) LITIGATION. Except as set forth in Section 3.1(g) of the Disclosure
Letter, there is no suit, claim, action, investigation or proceeding pending or,
to the knowledge of the Company, threatened against or affecting the Company or
any of its subsidiaries or any of their respective assets or properties before
or by any Governmental Entity that, individually or in the aggregate, would
reasonably be expected to have a material adverse effect on the Company, nor is
there any judgment, order or decree of any Governmental Entity or arbitrator
outstanding against the Company or any of its subsidiaries that, individually or
in the aggregate, would reasonably be expected to have a material adverse effect
on the Company.
(h) COMPLIANCE WITH APPLICABLE LAWS. The Company and its subsidiaries
hold all permits, licenses, variances, exemptions, certificates, authorizations,
orders and approvals of all Governmental Entities which are necessary or
advisable to the lawful operation of the respective business of the Company and
its subsidiaries (the "PERMITS"), except where the failure to hold such Permits,
individually or in the aggregate, would not reasonably be expected to have a
material adverse effect on the Company. All such Permits are in full force and
effect and the Company and its subsidiaries are in compliance with the terms of
the Permits and all applicable statutes, laws, ordinances, rules and
regulations, except where the failure so to maintain such Permits or so to
comply, individually or in the aggregate, would not reasonably be expected to
have a material adverse effect on the Company. The Company has not received any
notice to the effect that the Company or any of its subsidiaries is not in
compliance with the terms of the Permits or any such statutes, laws, ordinances,
rules, or regulations.
(i) CONTRACTS. Except for Contracts filed as exhibits to the Company SEC
Documents, there are no Contracts that were required to be filed as an exhibit
to those Company SEC Documents under the Exchange Act and the rules and
regulations promulgated thereunder. The Company has delivered to the Parent true
and complete copies, of:
(i) all Contracts of the Company or any of its subsidiaries made
in the ordinary course of business having an aggregate value over the
term of the Contract, or involving payments by or to the Company and its
subsidiaries, of more than $50,000, except for purchase and sales orders
in the ordinary course of business;
(ii) all Contracts of the Company or any of its subsidiaries
made outside the ordinary course of business which have not been
performed in full;
(iii) all Contracts or legally binding commitments of the
Company, any of its subsidiaries or any of its affiliates, that contain
a covenant restricting the ability of the Company or any of its
subsidiaries (or which, following the consummation of the Merger, could
restrict the ability of the Parent or any of its subsidiaries, including
the Company and its subsidiaries) to compete in any
Page 14
business or with any person or in any geographic area and a description
of all such Contracts is set forth in Section 3.1(i)(iii) of the
Disclosure Letter;
(iv) all Contracts of the Company or any of its subsidiaries
with any affiliate of the Company (other than any of its subsidiaries)
which have not been performed in full;
(v) all employment, consulting, bonus, severance, or retention
agreements or similar agreements or understandings of the Company or any
of its subsidiaries which have not been performed in full and a list of
all such Contracts is set forth in Section 3.1(i)(v) of the Disclosure
Letter;
(vi) all Contracts which, individually or in the aggregate,
would reasonably be expected to have a material adverse effect on the
Company to which the Company or any of its subsidiaries is a party
granting any license to any property, asset or right of the Company or
any of its subsidiaries, or right of first refusal with respect to the
Company, any of its subsidiaries or the assets and properties of the
Company or any of its subsidiaries;
(vii) all confidentiality, standstill or other similar Contracts
to which the Company or any of its subsidiaries is a party which have
not been performed in full and a list of all such Contracts is set forth
in Section 3.1(i)(vii) of the Disclosure Letter;
(viii) all joint venture, partnership or other similar Contracts
to which the Company or any of its subsidiaries is a party and a list of
all such Contracts is set forth in Section 3.1(i)(viii) of the
Disclosure Letter; and
(ix) all loan agreements, credit agreements, notes, debentures,
bonds, mortgages, indentures and other Contracts (collectively, "DEBT
OBLIGATIONS") pursuant to which any indebtedness of the Company or any
of its subsidiaries is outstanding or may be incurred and all guarantees
of or by the Company or any of its subsidiaries of any debt obligations
of any other person.
Each such Contract or agreement and each Contract or agreement disclosed in the
Disclosure Letter is in full force and effect and constitutes a legal, valid and
binding agreement, enforceable in accordance with its terms, of the Company or
its subsidiaries, as applicable, and the Company or its subsidiaries, as
applicable, has performed in all material respects all of its obligations under,
and is not in violation or breach of or default under, any such Contract or
agreement except for such violation or breach which would not reasonably be
expected to have a material adverse effect on the Company. To the knowledge of
the Company, the other parties to any such Contract or agreement have performed
in all material respects all of their obligations under, and are not in
violation or breach of or default under, any such Contract or agreement.
(j) ABSENCE OF CHANGES IN BENEFIT PLANS; EMPLOYMENT AGREEMENTS. Since
March 31, 2001, there has not been any adoption or amendment in any material
respect by the
Page 15
Company or any of its subsidiaries of any bonus, pension, profit sharing,
deferred compensation, incentive compensation, stock ownership, stock purchase,
stock appreciation, stock option, phantom stock, performance or retirement plan,
savings, stock bonus, cafeteria, vacation, severance, disability, death benefit,
medical, welfare or other benefit plan or program providing benefits to any
current or former employee, officer or director of the Company or any of its
subsidiaries. Except as set forth in Section 3.1(j) of the Disclosure Letter,
(i) each of the employees of the Company and its subsidiaries is employed at
will, (ii) there exist no employment (except employment at will), consulting,
deferred compensation, severance, termination or indemnification agreements or
arrangements between the Company or any of its subsidiaries, on the one hand,
and any current or former director, officer, employee or consultant of the
Company or any of its subsidiaries, on the other hand, or (iii) there exist no
agreements or arrangements between the Company or any of its subsidiaries, on
the one hand, and any current or former director, officer, employee or
consultant of the Company or any of its subsidiaries, on the other hand, the
benefits of which are contingent, or the terms of which are materially altered,
upon the occurrence of a transaction involving the Company of the nature
contemplated by this Agreement.
(k) LABOR MATTERS. Neither the Company nor any of its subsidiaries is a
party to or bound by any collective bargaining agreement with any labor
organization, group or association covering any of its employees and, to the
knowledge of the Company, there are no attempts to organize any of the Company's
or any of its subsidiaries' employees by any person, unit or group seeking to
act as their bargaining agent. The Company has complied in all material respects
with all applicable laws relating to the employment of labor, including
provisions thereof relating to wages, hours, equal opportunity, collective
bargaining, discrimination against race, color, national origin, religious
creed, physical or mental disability, sex, age, ancestry, medical condition,
marital status or sexual orientation, and the withholding and payment of social
security and other Taxes (as hereinafter defined). There are no pending or, to
the knowledge of the Company, threatened charges of unfair labor practices or of
employment discrimination or of any other wrongful action with respect to any
aspect of employment of any person employed or formerly employed by the Company
or any of its subsidiaries. To the knowledge of the Company, no union
representation elections relating to the Company's employees have been scheduled
by any Governmental Entity and no investigation of the employment policies or
practices of the Company by any Governmental Entity is pending or threatened.
(l) ERISA COMPLIANCE. Set forth in Section 3.1(l) of the Disclosure
Letter is a list of each "employee benefit plan" within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and any other bonus, pension, profit sharing, deferred compensation,
incentive compensation, stock ownership, stock purchase, stock appreciation,
stock option, phantom stock, performance or retirement plan, savings, stock
bonus, cafeteria, vacation, severance, disability, death benefit, medical,
welfare or other benefit plan or program sponsored or maintained by the Company
or any of its subsidiaries or to which the Company or any of its subsidiaries is
required to make contributions (such plans and related trusts and related
agreements and arrangements being hereinafter referred to as the "BENEFIT
PLANS"). The Company has delivered to the Parent true and complete copies of all
Benefit Plans and all financial statements, actuarial reports and annual reports
and returns filed with the
Page 16
Internal Revenue Service or Department of Labor with respect to such Benefit
Plans for a period of three years prior to the date hereof. In addition:
(i) each Benefit Plan has been operated and administered in
compliance with its terms in all material respects;
(ii) each Benefit Plan complies in all respects with all
requirements of ERISA and the Internal Revenue Code of 1986, as amended
(the "Code") and with all other applicable law except where the failure
to so comply, individually or in the aggregate, would not have a
material adverse effect on the Company;
(iii) each Benefit Plan intended to qualify under Section 401(a)
of the Code has received a favorable determination letter from the
Internal Revenue Service as to its qualification under Section 401(a) of
the Code;
(iv) neither the Company, nor any of its subsidiaries maintains,
sponsors or contributes to, and has maintained, sponsored or contributed
in the past six years to, any "defined benefit plan" (within the meaning
of Section 3(35) of ERISA) or any multiemployer plan (within the meaning
of Section 3(37) of ERISA);
(v) no "prohibited transaction" (within the meaning of Section
406 of ERISA or Section 4975(c) of the Code) has occurred with respect
to any Benefit Plan;
(vi) no provision of any Benefit Plan limits the right of the
Company or any of its subsidiaries to amend or terminate any Benefit
Plan on no more than 90 days notice, subject to the requirements of
applicable law;
(vii) all contributions required to have been made to trusts in
connection with any Benefit Plan that would constitute a "defined
contribution plan" (within the meaning of Section 3(34) of ERISA)
through the date hereof have been made;
(viii) other than claims in the ordinary course for benefits
with respect to the Benefit Plans, there are no actions, suits or claims
pending with respect to any Benefit Plan, or, to the Company's
knowledge, any circumstances which might give rise to any such action,
suit or claim;
(ix) all reports, returns and similar documents with respect to
the Benefit Plans required to be filed with any Governmental Entity have
been so filed; and
(x) neither the Company, nor any of its subsidiaries has any
obligation to provide health or other welfare benefits to former,
retired or terminated employees, except as specifically required under
Section 4980B of the Code or Section 601 of ERISA, and the Company and
its subsidiaries have complied in all
Page 17
material respects with the notice and continuation requirements of
Section 4980B of the Code and Section 601 of ERISA and the regulations
thereunder.
(m) TAXES.
(i) Each of the Company and its subsidiaries has filed or caused
to be filed on a timely basis all local, foreign and other tax returns,
reports and declarations (collectively, "TAX RETURNS") required to be
filed by it and has paid all taxes, including income, gross receipts,
capital stock, profits, stamp, occupation, transfer, value added,
excise, franchise, sales, use, property (whether real, personal or
mixed), employment, unemployment, disability, withholding, social
security and workers' compensation taxes and estimated income and
franchise tax payments, and interest, penalties, fines, costs and
assessments ("TAXES") with respect to the periods covered by such Tax
Returns (whether or not reflected thereon or yet due and payable or
assessed). All Tax Returns filed by or on behalf of the Company and its
subsidiaries are true, complete and correct. There are no tax Liens on
any of the properties or assets, real, personal or mixed, tangible or
intangible, of the Company or any of its subsidiaries, other than for
Taxes not yet due and payable.
(ii) Except as set forth in Section 3.1(m)(ii) of the Disclosure
Letter, since March 31, 2001, neither the Company nor any of its
subsidiaries has incurred any material Tax liability other than in the
ordinary course of business. No deficiency in Taxes of the Company or
any of its subsidiaries for any period has been asserted by any taxing
authority which remains unpaid at the date hereof. No Tax Returns of the
Company or any of its subsidiaries have ever been audited. No inquiries
or notices have been received by the Company or any of its subsidiaries
from a taxing authority with respect to possible claims for Taxes which
have not been resolved and paid prior to the date hereof, and neither
the Company nor any of its subsidiaries has any reason to believe that
such an inquiry or notice is pending or threatened, and there is no
basis for any additional claims or assessments for Taxes. Neither the
Company nor any of its subsidiaries has agreed to the extension of the
statute of limitations with respect to any Tax Returns or Tax periods.
There are no assessments relating to the Company's or any of its
subsidiaries' Tax Returns pending or, to the knowledge of the Company,
threatened. The Company has delivered to the Parent true and complete
copies of all income (or franchise) Tax Returns filed by it and any of
its subsidiaries for the past five financial years. Neither the Company
nor any of its subsidiaries is, or has been, the common parent or a
member of any affiliated group of corporations filing a consolidated
income tax return, (other than a group the common parent of which was
the Company) and is not a party to any tax sharing agreement or other
arrangement pursuant to which it could be liable for the Taxes of any
third party.
(iii) Adequate accruals and reserves have been made in the March
Financial Statements and the books and records of the Company and its
Page 18
subsidiaries for the payment of all unpaid local, foreign and other
Taxes of the Company and its subsidiaries for all periods through the
respective dates thereof, whether or not yet due and payable and whether
or not disputed by the Company or any of its subsidiaries, and nothing
has occurred subsequent to the dates of such March Financial Statements
or such accruals or reserves in such books and records which make such
accruals and reserves inadequate.
(iv) Except as set forth in Section 3.1(m)(iv) of the Disclosure
Letter, the Company has not been liable for the payment of interest,
penalties, or fines in relation to Taxes during the past five years.
(n) TITLE TO PROPERTIES. Each of the Company and its subsidiaries has
marketable and legal title to, or valid leasehold interests in, all of its
properties and assets except for such as are no longer used in the conduct of
its businesses or as have been disposed of in the ordinary course of business
and except for defects in title, easements, restrictive covenants and similar
encumbrances that, individually or in the aggregate, would not reasonably be
expected to have a material adverse effect on the Company. Except as set forth
in Section 3.1(n) of the Disclosure Letter, all such properties and assets,
other than properties and assets in which the Company or any of its subsidiaries
has a leasehold interest, are free and clear of all Liens, except for Liens
that, individually or in the aggregate, would not reasonably be expected to have
a material adverse effect on the Company. With respect to the Company's leased
property located at 0000 Xxxxxxx Xxxxxx, Xxxxxxx, Xxxxxxxxxx, there are no above
ground storage drums located thereon.
Each of the Company and its subsidiaries has complied with the terms of
all leases to which it is a party and under which it is in occupancy, and all
such leases are in full force and effect, except for such noncompliances or
failures to be in full force and effect that, individually or in the aggregate,
would not reasonably be expected to have a material adverse effect on the
Company. The Company and its subsidiaries enjoy peaceful and undisturbed
possession under all such leases.
(o) INTELLECTUAL PROPERTY.
(i) Section 3.1(o)(i) of the Disclosure Letter lists all
registered and material unregistered trademarks and applications
therefor, trade names, service marks, registered copyrights and
applications therefor, patents and patent applications, if owned by or
licensed to the Company or any of its subsidiaries and indicating
whether owned by or licensed to the Company or any of its subsidiaries.
Each of the Company and its subsidiaries owns, or is validly licensed or
otherwise has the right to use, in each case free and clear of any Liens
(including any performer's rights, third party distribution rights and
mechanical and other reproduction rights), all Intellectual Property (as
defined in (iv) below) used or necessary to carry on its business as now
being conducted.
(ii) Except with respect to Patents and unregistered trademarks,
in respect of which the Company represents and warrants only to its
knowledge,
Page 19
none of the Company or any of its subsidiaries has infringed upon,
misappropriated or otherwise come into conflict with any Intellectual
Property or other proprietary information of any other person, except
for any such infringement, misappropriation or other conflict that,
individually or in the aggregate, would not reasonably be expected to
have a material adverse effect on the Company. Except as disclosed in
Section 3.1(o)(ii) of the Disclosure Letter, (A) none of the Company or
any of its subsidiaries has received any charge, complaint, claim,
demand or notice alleging any such infringement, misappropriation or
other conflict or challenging the ownership, use, validity or
enforceability of any Intellectual Property owned by, licensed to or
otherwise used by the Company or any of its subsidiaries nor, to the
knowledge of the Company, is there a reasonable basis for any such
claim, (B) none of the Company or any of its subsidiaries is party to or
the subject of any pending or, to the knowledge of the Company,
threatened, suit, claim, action, investigation or proceeding with
respect to any such infringement, misappropriation or conflict, that has
not been settled or otherwise fully resolved and (C) to the knowledge of
the Company, no other person has infringed upon, misappropriated or
otherwise come into conflict with any Intellectual Property owned by,
licensed to or otherwise used by the Company or any of its subsidiaries.
(iii) Section 3.1(o)(iii) of the Disclosure Letter contains a
list of each current employee or consultant of the Company and its
subsidiaries who has not executed the Company's standard form
confidentiality agreement in the form delivered to the Parent. Each of
the Company and its subsidiaries has taken all reasonable and necessary
steps (based on standard industry practices) to protect its Intellectual
Property and rights thereunder and, to the knowledge of the Company, no
such rights to Intellectual Property have been lost or are in jeopardy
of being lost as a result of any act or omission by the Company or any
of its subsidiaries.
(iv) "INTELLECTUAL PROPERTY" shall mean (A) inventions (whether
patentable or unpatentable and whether or not reduced to practice),
ideas, research and techniques, technical designs, discoveries and
specifications, improvements, modifications, adaptations, and
derivations thereto, and patents, patent applications, models,
industrial designs, inventor's certificates, and patent disclosures,
together with reissuances, continuations, continuations-in-part,
revisions, extensions and reexaminations thereof (the "PATENTS"), (B)
trademarks, all service marks, logos, trade dress, brand names and trade
names, assumed names, corporate names and other indications of origin
(whether registered or unregistered), (C) copyrights (whether registered
or unregistered and any applications for registration therefor,
including any modifications, extensions or renewals thereof), (D) trade
secrets, know-how and confidential business information and rights in
any jurisdiction to limit the use or disclosure thereof by any person,
(E) Software, (F) internet domain names, and (G) moral rights, publicity
rights, customer lists.
Page 20
(p) SOFTWARE. The Software (as defined below) owned or purported to be
owned by the Company or any of its subsidiaries, was either (i) developed by
employees of the Company or its subsidiaries within the scope of their
employment, (ii) developed by independent contractors who have assigned their
rights to the Company or its subsidiaries pursuant to written agreements or
(iii) otherwise lawfully acquired by the Company or its subsidiaries from a
third party pursuant to written agreements. Such Software does not contain any
programming code, documentation or other material or development environments
that embody Intellectual Property rights of any person other than the Company or
its subsidiaries, except for such materials or development environments obtained
by the Company or its subsidiaries from (i) third parties pursuant to valid
licenses or other agreements or (ii) other persons who make such materials or
development environments generally available to all interested purchasers or
end-users on standard commercial terms. The source code of any of the Company's
Software and the data associated therewith have not been licensed or otherwise
provided to another person, other than the source code of the Company's Software
in its hardware sales contracts which have been licensed to certain purchasers
in conjunction with the operation of theaters by such purchasers, and have been
safeguarded and protected as confidential and proprietary Company information.
"SOFTWARE" means any and all (i) computer programs, including any and all
software implementations of algorithms, models and methodologies, whether in
source code or object code, (ii) databases and compilations, including any and
all data and collections of data, whether machine readable or otherwise, (iii)
descriptions, schematics, flow-charts and other work product used to design,
plan, organize and develop any of the foregoing and (iv) all documentation,
including user manuals and training materials, relating to any of the foregoing.
(q) ENVIRONMENTAL MATTERS.
(i) Each of the Company and its subsidiaries possesses in full
force and effect all material Environmental Permits (as defined below)
necessary to conduct its businesses and operations as now being
conducted. None of the Company or its subsidiaries has been notified by
any Governmental Entity that any Environmental Permits will be modified,
suspended or revoked.
(ii) Each of the Company and its subsidiaries is in compliance
with all applicable Environmental Laws (as defined below) and the terms
and conditions of all Environmental Permits except for failures to be in
compliance that, individually or in the aggregate, would not reasonably
be expected to have a material adverse effect on the Company. None of
the Company or its subsidiaries has received any communication from any
Governmental Entity or other person that alleges that the Company or any
of its subsidiaries has violated or is, or may be, liable under any
Environmental Law.
(iii) There are no past or pending or, to the knowledge of the
Company, threatened material Environmental Claims (as defined below) (A)
against the Company or any of its subsidiaries or (B) against any person
whose liability for any Environmental Claim the Company or any of its
subsidiaries has retained or assumed, either contractually or by
operation of law, and none of the Company or any of its subsidiaries has
contractually retained or assumed any liabilities or
Page 21
obligations that would reasonably be expected to provide the basis for
any material Environmental Claim.
(iv) There have been no Releases (as defined below) of any
Hazardous Materials (as defined below) at, from, in, to, on or under any
real properties currently or previously owned, leased, or utilized by
the Company or any of its subsidiaries, predecessors, or affiliates that
would reasonably be expected to form the basis of any material
Environmental Claim against the Company or any of its subsidiaries.
(v) Neither the Company nor any of its subsidiaries,
predecessors or affiliates transported or arranged for the
transportation, treatment, storage, handling or disposal of any
Hazardous Materials to any off-site location that would reasonably be
anticipated to result in a material Environmental Claim.
(vi) There are no (A) underground storage tanks, active or
abandoned, (B) polychlorinated biphenyl containing equipment or (C)
asbestos containing material within the leasehold of any site or
building utilized by the Company or any of its subsidiaries.
(vii) There have been no environmental investigations, studies,
tests, audits, reviews or other analyses conducted by, on behalf of, or
which are in the possession of, the Company or any of its subsidiaries
which have not been delivered to the Parent.
(viii) (A) "ENVIRONMENTAL CLAIMS" means any and all actions,
orders, decrees, suits, demands, directives, claims, Liens,
investigations, proceedings or notices of violation by any Governmental
Entity or other person alleging potential responsibility or liability
arising out of, based on or related to (1) the presence, Release or
threatened Release of, or exposure to, any Hazardous Materials at any
location or (2) circumstances forming the basis of any violation or
alleged violation of any Environmental Law;
(B) "ENVIRONMENTAL LAWS" means all laws, rules,
regulations, orders, decrees, common law, judgments or
binding agreements issued, promulgated or entered into
by or with any Governmental Entity with applicable
authority over such matters relating to pollution or
protection of the environment or human health;
(C) "ENVIRONMENTAL PERMITS" means all permits, licenses,
registrations and other authorizations required under
applicable Environmental Laws;
(D) "HAZARDOUS MATERIALS" means all hazardous, toxic,
explosive or radioactive substances, wastes or other
pollutants, including petroleum or petroleum
distillates, asbestos, polychlorinated biphenyls, radon
gas and
Page 22
all other substances or wastes of any nature regulated
pursuant to any Environmental Law; and
(E) "RELEASE" means any release, spill, emission,
leaking, dumping, injection, pouring, deposit, disposal,
discharge, dispersal, leaching or migration into the
environment or within any building, structure, facility
or fixture.
(r) ASSETS IN GOOD CONDITION. All physical assets of the Company and its
subsidiaries carried for value on the SEC Financial Statements (other than the
11 portable ride simulation theatres of the Company pertaining to its Touring
Division which are in the process of being sold or used for other purposes) are
in good operating condition and in a state of good maintenance and repair having
regard to the use to which such assets are put and the age thereof.
(s) INSURANCE. All physical assets of the Company and its subsidiaries
carried for value on the SEC Financial Statements are covered by fire and other
insurance with responsible insurers against such risks and in such amounts as
are reasonable for prudent owners of comparable assets. Section 3.1(s) of the
Disclosure Letter lists all the insurance policies held by the Company or any of
its subsidiaries. Neither the Company nor any of its subsidiaries is in default
with respect to any of the provisions contained in any such policies of
insurance or has failed to give any notice or pay any premium or present any
claim under any such insurance policy, other than such defaults or failures
which would not reasonably be expected to have a material adverse effect on the
Company. The Company has no reason to believe that any of the insurance policies
listed in Section 3.1(s) of the Disclosure Letter will not be renewed by the
insurer upon the scheduled expiry of the policy or will be renewed by the
insurer only on the basis that there will be a material increase in the premiums
payable in respect of the policy. The Company has delivered to the Parent true
and complete copies of all of such insurance policies.
(t) NON-ARM'S LENGTH TRANSACTIONS.
Except as disclosed in the Proxy Statements of the Company included in
the Company SEC Documents during the preceding five years:
(i) Neither the Company nor any of its subsidiaries has made any
payment or loan to, or borrowed any monies from or is or has become
otherwise indebted to, any officer, director, employee, stockholder or
any other person with whom the Company or any of its subsidiaries is not
dealing at arm's length or any affiliate of any of the foregoing, except
for usual compensation paid in the ordinary course of business.
(ii) Except for Contracts made solely between the Company and
any of its subsidiaries or between any of the subsidiaries of the
Company and except for Contracts of employment or relating to severance
or change of control payments, neither the Company nor any of its
subsidiaries is a party to any Contract with any officer, director,
employee, stockholder or any other person with whom the
Page 23
Company or any of its subsidiaries is not dealing at arm's length or any
affiliate of any of the foregoing.
(u) BROKERS. Except for a fee owing by the Company to Resource Financial
Corporation not exceeding $300,000 (plus expenses), pursuant to an Engagement
Letter dated as of November 3, 1999, no broker, investment banker, financial
advisor or other person has been retained by, or is authorized to act on behalf
of the Company or any of its subsidiaries, and is entitled to any broker's,
finder's, financial advisor's or other similar fee or commission in connection
with the transactions contemplated by this Agreement.
(v) CURRENT LIABILITIES. Section 3.1(v) of the Disclosure Letter sets
forth those current liabilities reflected on the SEC Financial Statements of the
Company for the fiscal year ended June 30, 2000 which have been reduced through
forgiveness of debt by the Company's creditors, which reduction in the aggregate
is not less than $650,000.
3.2 REPRESENTATIONS AND WARRANTIES OF THE PARENT AND ACQUISITION CO.
The Parent and Acquisition Co. represent and warrant to the Company as
follows:
(a) ORGANIZATION, STANDING AND CORPORATE POWER. Each of the Parent and
Acquisition Co. is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is organized and has the
requisite corporate power and authority to carry on its business as now being
conducted. Each of the Parent and Acquisition Co. is duly qualified or licensed
to do business and is in good standing in each jurisdiction in which the nature
of its business or the ownership or leasing of its properties or operations
makes such qualification or licensing necessary, other than in such
jurisdictions where the failure to be so qualified or licensed or to be in good
standing, individually or in the aggregate, would not reasonably be expected to
have a material adverse effect on the Parent.
(b) AUTHORITY; NONCONTRAVENTION.
(i) The Parent and Acquisition Co. have the requisite corporate
power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated by this Agreement. The
execution and delivery of this Agreement by the Parent and Acquisition
Co. and the consummation by the Parent and Acquisition Co. of the
transactions contemplated by this Agreement have been duly authorized by
all necessary corporate action on the part of the Parent and Acquisition
Co. and no other corporate proceedings on the part of the Parent or
Acquisition Co. are necessary to approve this Agreement or to consummate
the transactions contemplated by this Agreement. This Agreement has been
duly executed and delivered by the Parent and Acquisition Co. and
constitutes a legal, valid and binding obligation of the Parent and
Acquisition Co., enforceable against the Parent and Acquisition Co. in
accordance with its terms subject to (A) applicable bankruptcy,
insolvency, fraudulent transfer and conveyance, moratorium,
reorganization, receivership and similar laws relating to or affecting
the enforcement of the rights and remedies of creditors generally and
Page 24
(B) principles of equity (regardless of whether considered and applied
in a proceeding in equity or at law).
(ii) The execution and delivery of this Agreement by the Parent
and Acquisition Co. and the consummation of the transactions
contemplated hereby and compliance by the Parent and Acquisition Co.
with the provisions hereof, do not and will not conflict with, or result
in any violation or breach of, or default (with or without notice or
lapse of time, or both) under, or give rise to a right of, or result in,
termination, cancellation or acceleration of any obligation or to a loss
of a material benefit under, or result in the creation of any Lien in or
upon any of the properties or assets of the Parent or Acquisition Co.
under, or give rise to any increased, additional, accelerated or
guaranteed rights or entitlements under, any provision of (A) the
Articles of Incorporation or By-laws of the Parent or the Certificate of
Incorporation or By-laws of Acquisition Co., (B) any Contract to which
the Parent or Acquisition Co. is a party or any of their respective
properties or assets is subject or (C) subject to the governmental
filings and other matters referred to in the following paragraph, any
statute, law, ordinance, rule, regulation, judgment, order or decree, in
each case, applicable to the Parent or Acquisition Co. or their
respective properties or assets; OTHER THAN, in the case of clauses (B)
and (C), any such conflicts, violations, breaches, defaults, rights,
results, losses, Liens or entitlements that, individually or in the
aggregate, would not reasonably be expected to prevent or materially
impede or delay the consummation of the Merger or the other transactions
contemplated by this Agreement.
(iii) No consent, approval, order or authorization of, or
registration, declaration or filing with, or notice to, any Governmental
Entity is required by or with respect to the Parent or Acquisition Co.
in connection with the execution and delivery of this Agreement by the
Parent and Acquisition Co. or the consummation by the Parent and
Acquisition Co. of the transactions contemplated hereby or the
compliance with the provisions hereof, except for (A) the filing of the
Certificate of Merger with the Delaware Secretary of State and
appropriate documents with the relevant authorities of other states in
which the Company is qualified to do business and (B) such other
consents, approvals, orders, authorizations, registrations,
declarations, filings or notices the failure of which to be obtained or
made, individually or in the aggregate, would not reasonably be expected
to prevent or materially impede or delay the consummation of the Merger
or the other transactions contemplated by this Agreement.
(c) LITIGATION. There is no suit, claim, action, investigation or
proceeding pending or, to the knowledge of the Parent or Acquisition Co.,
threatened against or affecting the Parent or Acquisition Co. or any of their
respective assets or properties before or by any Governmental Entity that,
individually or in the aggregate, would reasonably be expected to prevent or
materially impede or delay the consummation of the Merger and the other
transactions contemplated by this Agreement, nor is there any judgment, order or
decree of any Governmental Entity or arbitrator outstanding against the Parent
or Acquisition Co. that,
Page 25
individually or in the aggregate, would reasonably be expected to prevent or
materially impede or delay the consummation of the Merger and the other
transactions contemplated by this Agreement.
(d) BROKERS. No broker, investment banker, financial advisor or other
person has been retained by, or is authorized to act on behalf of, the Parent or
any of its subsidiaries and is entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with the transactions
contemplated by this Agreement.
(e) OWNERSHIP OF COMPANY COMMON STOCK. Each of the Parent and
Acquisition Co. is not, nor at any time during the last three years has either
been, an "interested stockholder" of the Company as defined in Section 203 of
the DGCL. Other than by virtue of the convertible note in the aggregate
principal amount of $200,000 purchased by the Parent from the Company (the
"SimEx Note"), neither the Parent nor Acquisition Co. owns, directly or
indirectly, beneficially or of record, nor is either a party to any agreement,
arrangement or understanding for the purpose of acquiring, holding, voting or
disposing of, any shares of capital stock of the Company (other than as
contemplated by this Agreement).
(f) INTERIM OPERATIONS OF ACQUISITION CO. Acquisition Co. was formed
solely for the purpose of engaging in the transactions contemplated hereby and
has not engaged in any other business activities and has conducted its
operations only as contemplated hereby. Acquisition Co. has not incurred,
directly or indirectly, any material liabilities or obligations except those in
connection with its organization or with the negotiation and execution of this
Agreement and the performance of the transactions contemplated hereby.
(g) FINANCING. Based on existing cash on hand and financing commitments,
the Parent has all the funds necessary to consummate the Merger and the
transactions contemplated hereby, including payment in full for all the shares
of Company Common Stock validly surrendered pursuant to Article 2 hereof.
ARTICLE 4.
COVENANTS RELATING TO CONDUCT OF BUSINESS
4.1 CONDUCT OF BUSINESS
(a) Except as otherwise expressly provided in this Agreement, between
the date hereof and the Effective Time, the Company shall, and shall cause its
subsidiaries, (i) to operate their respective businesses in the ordinary course
of business and, to the extent consistent therewith, with no less diligence and
effort than would be applied in the absence of this Agreement, (ii) to comply
with all applicable laws, rules and regulations, in all material respects, and
(iii) to use all commercially reasonable efforts to preserve intact their
assets, properties and licenses of their current business organization, keep
available the service of their current officers and employees and preserve their
relationships with customers, suppliers, distributors, lessors, licensors,
licensees, creditors, employees, contractors and others having business dealings
with them with the intention that their goodwill and ongoing businesses shall be
unimpaired at the Effective Time. Subject to Section 4.1(b) and without limiting
the generality of the foregoing
Page 26
and except as otherwise expressly provided in this Agreement (including in the
Disclosure Letter) or consented to in writing by the Parent (which consent shall
not be unreasonably withheld, conditioned or delayed), prior to the Effective
Time the Company shall not, and shall not permit any of its subsidiaries to:
(i) declare, set aside or pay any dividends on, or make any
other distributions (whether in cash, stock or property) in respect of,
any of its capital stock;
(ii) purchase, redeem or otherwise acquire any shares of capital
stock or any other securities of the Company or its subsidiaries or any
options, warrants, calls or rights to acquire any such shares or other
securities;
(iii) split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of,
in lieu of, or in substitution for shares of its capital stock or any of
its other securities;
(iv) issue, deliver, sell, pledge or otherwise encumber any
shares of its capital stock, any other equity or voting interests or any
securities convertible into, or exchangeable for, or any options,
warrants, calls or rights to acquire, any such shares, voting securities
or convertible or exchangeable securities or any stock appreciation
rights or other rights that are linked in any way to the price of
Company Common Stock (other than the issuance of shares of Company
Common Stock upon the exercise of Options or Warrants outstanding on the
date of this Agreement pursuant to their terms as in effect on the date
of this Agreement or as a result of the transactions contemplated hereby
or the SimEx Note);
(v) amend or propose to amend its Certificate of Incorporation
or By-laws (or similar organizational documents);
(vi) directly or indirectly, acquire or agree to acquire (A) by
merging or consolidating with, or by purchasing all or a substantial
portion of the assets of, or by any other manner, any assets
constituting a business or any corporation, partnership, limited
liability company, joint venture or association or other entity or
division thereof, or any direct or indirect interest in any of the
foregoing, or (B) any assets, other than inventory or immaterial assets
in each case in the ordinary course of business;
(vii) adopt a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or
other reorganization of the Company or any of its subsidiaries or
otherwise permit the corporate existence of the Company or any of its
subsidiaries to be suspended, lapsed or revoked;
(viii) directly or indirectly, sell, lease, license, sell and
leaseback, mortgage or otherwise encumber or subject to any Lien or
otherwise dispose of
Page 27
any of its properties or assets or any interest therein, except in the
ordinary course of business;
(ix) (A) repurchase, prepay or incur any indebtedness or assume,
guarantee or endorse any indebtedness of another person or issue or sell
any debt securities or options, warrants, calls or other rights to
acquire any debt securities of the Company or any of its subsidiaries,
except for borrowings incurred in the ordinary course of business or
transactions between the Company and the Parent or (B) make any loans,
advances or capital contributions to, or investments in, any other
person, other than the Company or any direct or indirect wholly-owned
subsidiary of the Company;
(x) incur or commit to incur any capital expenditures, or any
obligations or liabilities in connection therewith, except in the
ordinary course of business;
(xi) pay, discharge, settle or satisfy any claims (including
claims of stockholders), liabilities or obligations (whether absolute,
accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction in the ordinary course of
business as required by applicable law, rule, regulation, order or
decision or as required by their terms as in effect on the date of this
Agreement (including, any payments to be made pursuant to the settlement
agreement between the Company and Ex Machina which has been provided to
the Parent) of claims, liabilities or obligations reflected or reserved
against in the March Financial Statements (for amounts not in excess of
such reserves) or incurred since the date of such March Financial
Statements in the ordinary course of business, or waive, release, grant
or transfer any right of material value, other than in the ordinary
course of business, or waive any material benefits of, or agree to
modify in any adverse respect, or, subject to the terms hereof, fail to
enforce, or consent to any matter with respect to which its consent is
required under, any confidentiality, standstill or similar agreement to
which the Company or any of its subsidiaries is a party, provided,
however, that notwithstanding this clause (xi), the Company shall not,
without the prior written consent of the Parent pay, discharge, settle
or satisfy any liabilities or obligations (whether absolute, accrued,
asserted or unasserted, contingent or otherwise) owing to Disney;
(xii) enter into, modify, amend or terminate (A) any Contract
which if so entered into, modified, amended or terminated would be
reasonably likely to (x) have a material adverse effect on the Company,
(y) impair in any material respect the ability of the Company to perform
its obligations under this Agreement or (z) prevent or materially delay
the consummation of the transactions contemplated by this Agreement or
(B) except in the ordinary course of business, any material Contract to
which the Company or any subsidiary thereof is a party;
Page 28
(xiii) enter into any Contract containing any restriction on the
ability of the Company or any of its subsidiaries to assign its rights,
interests or obligations thereunder, unless such restriction expressly
excludes any assignment to the Parent or any of its subsidiaries in
connection with or following the consummation of the Merger and the
other transactions contemplated by this Agreement;
(xiv) (A) except as otherwise contemplated by this Agreement or
as required to comply with applicable law, rule or regulation or any
Contract or Benefit Plans existing on the date of this Agreement, pay
any material benefit not provided for as of the date of this Agreement
under any Contract or Benefit Plan or (B) adopt or enter into any
collective bargaining agreement or other labor union contract applicable
to the employees of the Company or any subsidiary thereof;
(xv) hire any additional employees or retain any additional
consultants, materially increase the compensation of any employees or
consultants or enter into any employment or consulting agreements;
provided, however, that the Company may hire employees for the sole
purpose of replacing employees who have been terminated or have
terminated their employment on terms and conditions (including
compensation) which are the same, in all material respects, as the terms
and conditions of the employees being replaced;
(xvi) maintain insurance at less than current levels or
otherwise in a manner inconsistent with past practice;
(xvii) take any action (or omit to take any action) if such
action (or omission) would reasonably be expected to result in (A) any
representation and warranty of the Company set forth in this Agreement
that is qualified as to materiality becoming untrue, (B) any such
representation and warranty that is not so qualified becoming untrue in
any material respect or (C) any condition to the Merger set forth in
Article 6 not being satisfied; PROVIDED, HOWEVER, nothing contained in
this clause (xvii) shall preclude or prohibit the Company from
exercising its rights under Section 4.2;
(xviii) commence any suit, action or proceeding (other than a
suit, action or proceeding in connection with the collection of accounts
receivable, to enforce the terms of this Agreement or as a result of a
suit, action or proceeding commenced against the Company or any of its
subsidiaries);
(xix) change its fiscal year, revalue any of its material assets
or, except as required by GAAP, make any changes in accounting methods,
principles or practices; and
(xx) authorize any of, or commit, resolve or agree to take any
of, the foregoing actions.
Page 29
(b) Notwithstanding Section 4.1(a) hereof, between the date hereof and
the Effective Time, the Company may, after providing notice to the Parent in the
Company's sole discretion and without the consent of the Parent, (i) comply with
its legally binding obligations outstanding as of the date hereof which have
been either provided to the Parent or disclosed in the Company SEC Documents in
accordance with the terms of such agreements, and (ii) operate its business in
accordance with the Budget attached as Section 4.1(b) to the Disclosure Letter,
which the Company agrees and covenants to do.
4.2 NO SOLICITATION BY THE COMPANY
(a) The Company shall not, nor shall it permit any of its subsidiaries
to, or authorize or permit any director, officer or employee of the Company or
any of its subsidiaries or any investment banker, attorney, accountant or other
advisor or representative of the Company or any of its subsidiaries to, directly
or indirectly:
(A) solicit, initiate or knowingly encourage, or take any other
action knowingly to facilitate, any Takeover Proposal (as defined below)
or any inquiries or the making of any proposal that constitutes or would
reasonably be expected to lead to a Takeover Proposal; or
(B) enter into, continue or otherwise participate in any
discussions or negotiations regarding, or furnish to any person any
information with respect to, or otherwise cooperate in any way with, any
Takeover Proposal;
PROVIDED, HOWEVER, that at any time prior to obtaining Stockholder Approval, the
Board of Directors of the Company may, in response to a bona fide unsolicited
Takeover Proposal that did not otherwise result from a breach of this Section
4.2(a), and subject to compliance with Sections 4.2(b) and (c):
(X) furnish information with respect to the Company and its
subsidiaries to the person making such Takeover Proposal (and
its representatives) pursuant to a customary confidentiality
agreement, provided that all such information is provided or
made available on a prior or substantially concurrent basis to
the Parent; and
(Y) participate in discussions or negotiations with the person
making such Takeover Proposal (and its representatives)
regarding such Takeover Proposal,
if the Board of Directors of the Company determines in good faith, after
consultation with outside counsel, that it is reasonably likely that the failure
to do so would constitute a breach of its fiduciary duty to the Company's
stockholders under applicable law and provides the Parent with reasonable prior
notice of its intention to engage in any of the actions contemplated in clauses
(X) and (Y) above and other details with respect to such Takeover Proposal as
the Parent may reasonably request. In addition, if the Board of Directors
authorizes the Company, subject to complying with the terms of this Agreement,
to take any of the actions referred to in Section
Page 30
4.2(b) in response to a bona fide unsolicited Takeover Proposal, the Board of
Directors in good faith in accordance with its fiduciary duties shall direct the
Company to notify the Parent and before taking such action and during the three
business day period after such notice (i) to negotiate with, and shall have
caused the legal counsel of the Company to negotiate with, the Parent to attempt
to make such commercially reasonable adjustments to the terms and conditions of
this Agreement as would enable the Company to proceed with the transactions
contemplated hereby and (ii) the Board of Directors of the Company shall have
concluded, after considering the results of such negotiations, that the Takeover
Proposal giving rise to the Company's notice continues to be superior. Without
limiting the foregoing, it is understood that any violation of the restrictions
set forth in this Section 4.2(a) by any director, officer or employee of the
Company or any of its subsidiaries or any investment banker, attorney,
accountant or other advisor or representative of the Company or any of its
subsidiaries shall be deemed to be a breach of this Section 4.2(a) by the
Company. The term "TAKEOVER PROPOSAL" means any inquiry, proposal or offer from
any person relating to, or that is reasonably likely to lead to, any direct or
indirect acquisition, in one transaction or a series of transactions, including
any merger, consolidation, tender offer, exchange offer, stock acquisition,
asset acquisition, binding share exchange, business combination,
recapitalization, liquidation, dissolution, joint venture or similar
transaction, of (i) all or any part of the material assets, properties or
business (other than the sale of portable ride simulator theatres as described
in the Company SEC Documents) of the Company or its subsidiaries or (ii) all or
any part of the outstanding shares of Company Common Stock or capital stock of,
or other equity or voting interests in, the Company or any of its subsidiaries.
(b) If at any time prior to obtaining the Stockholder Approval, the
Board of Directors of the Company, in response to a bona fide unsolicited
Takeover Proposal (i) withdraws the recommendation by the Board of Directors to
this Agreement or the Merger, (ii) determines that this Agreement or the Merger
is no longer advisable, (iii) recommends that the stockholders of the Company
reject this Agreement or the Merger, (iv) recommends the approval or adoption of
such Takeover Proposal, (v) causes or permits the Company to enter into any
letter of intent, memorandum of understanding, agreement in principle,
acquisition agreement, merger agreement, option agreement, joint venture
agreement, partnership agreement or other agreement constituting or related to,
or which is intended to or is reasonably likely to lead to, any Takeover
Proposal or (vi) resolves, agrees or proposes publicly to take any such actions
in response to such Takeover Proposal that do not otherwise result from a breach
of Section 4.2(a), this Agreement may be terminated pursuant to Sections 7.1(d)
and 7.1(f); PROVIDED, HOWEVER, that the Company shall not terminate this
Agreement pursuant to Section 7.1(f) and any purported termination pursuant to
Section 7.1(f) shall be void and of no force or effect, unless the Company shall
have complied with all provisions of Section 4.2(a), and with all applicable
requirements of Section 5.4(b) prior to or simultaneously with such termination.
(c) In addition to the obligations of the Company set forth in Sections
4.2(a) and 4.2(b), the Company shall promptly advise the Parent in writing of
any request for information that the Company reasonably believes could lead to
or contemplates a Takeover Proposal or of any Takeover Proposal, or any inquiry
the Company reasonably believes could lead to any Takeover Proposal, the terms
and conditions of such request, Takeover Proposal or inquiry (including any
subsequent material amendment or modification to such terms and
Page 31
conditions) and the identity of the person making any such request, Takeover
Proposal or inquiry. The Company shall keep the Parent informed in all material
respects on a timely basis of the status and details (including material
amendments or proposed amendments) of any such request, Takeover Proposal or
inquiry.
(d) Nothing contained in this Section 4.2 shall prohibit the Company
from taking and disclosing to its stockholders a position contemplated by Rule
14d-9 or Rule 14e-2(a) promulgated under the Exchange Act or from making any
disclosure to the Company's stockholders if, in the good faith judgment of the
Board of Directors of the Company, after consultation with outside counsel,
failure so to disclose would be inconsistent with its fiduciary duties to the
Company's stockholders under applicable law.
ARTICLE 5.
ADDITIONAL AGREEMENTS
5.1 PREPARATION OF THE PROXY STATEMENT; STOCKHOLDERS MEETING
(a) As promptly as practicable following the date of this Agreement, the
Company shall prepare and file with the SEC the Proxy Statement. The Company
shall promptly notify the Parent of any comments from the SEC or its staff or
any request from the SEC or its staff for amendments or supplements to the Proxy
Statement and shall promptly provide copies of all correspondence between it and
its representatives, on the one hand, and the SEC and its staff, on the other
hand. Each of the Company and the Parent shall use all commercially reasonable
efforts to respond as promptly as practicable to any comments of the SEC with
respect thereto and to cause the Proxy Statement to be mailed to the Company's
stockholders as promptly as practicable after all such SEC comments have been
resolved. Notwithstanding the foregoing, prior to filing or mailing the Proxy
Statement (or any amendment or supplement thereto) or responding to any comments
of the SEC with respect thereto, the Company (i) shall provide the Parent with a
reasonable opportunity to review and comment on such document or response, (ii)
shall include in such document or response all comments reasonably proposed by
the Parent and (iii) shall not file or mail such document or respond to the SEC
prior to receiving the Parent's approval, which approval shall not be
unreasonably withheld, delayed or conditioned.
(b) The Company shall, as promptly as practicable following the date of
this Agreement, establish a record date for, duly call, give notice of, convene
and hold a meeting of its stockholders (the "STOCKHOLDERS MEETING") for the
purpose of obtaining Stockholder Approval, regardless of whether the Board of
Directors of the Company determines at any time that this Agreement or the
Merger is no longer advisable or recommends that the stockholders of the Company
reject this Agreement or the Merger, in all cases subject to its rights under
Section 4.2(b). The Company shall cause the Stockholders Meeting to be held as
promptly as practicable following the date of this Agreement. The Company shall,
through its Board of Directors, recommend to its stockholders that they adopt
this Agreement, and shall include such recommendation in the Proxy Statement, in
each case subject to its rights under Section 4.2(b). Without limiting the
generality of the foregoing, the Company agrees that its obligations pursuant to
this Section 5.1(b) to take actions to and hold the Stockholders Meeting for the
Page 32
purpose of obtaining Stockholder Approval shall not be affected by the
commencement, public proposal, public disclosure or communication to the Company
or any other person of any Takeover Proposal.
(c) The Company agrees that none of the information included or
incorporated by reference in the Proxy Statement will (except to the extent
revised or superseded by amendments or supplements contemplated hereby), at the
date the Proxy Statement is filed with the SEC or mailed to the Company's
stockholders or at the time of the Stockholders Meeting, or at the time of any
amendment or supplement thereof, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading. The Proxy Statement will comply as to form in all
material respects with the requirements of the Exchange Act and the rules and
regulations promulgated thereunder.
(d) The Company shall retain an agent, on terms or conditions acceptable
to the Parent, for the purpose of soliciting proxies on behalf of the Company
for the Stockholders Meeting.
5.2 ACCESS TO INFORMATION; CONFIDENTIALITY
The Company shall, and shall cause each of its subsidiaries to, afford
to the Parent and to the officers, employees, attorneys, accountants and other
representatives of the Parent, reasonable access during normal business hours
during the period prior to the Effective Time or termination of this Agreement,
and without undue disruption of their respective businesses, to all their
respective properties, books, contracts, commitments, personnel and records and,
during such period, the Company shall, and shall cause each of its subsidiaries
to, furnish promptly to the Parent (i) a copy of each report, schedule, form,
statement and other document filed by it or received by it during such period
pursuant to the requirements of federal or state securities laws and (ii) all
other information concerning its business, properties and personnel as the
Parent may reasonably request. The Parent will hold, and will cause its
respective officers, employees, attorneys, accountants and other representatives
to hold, any nonpublic information in accordance with the terms of that certain
Confidentiality Agreement dated as of May 4, 2000 (the "CONFIDENTIALITY
AGREEMENT").
5.3 COMMERCIALLY REASONABLE EFFORTS
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the Parties agrees to use all commercially reasonable efforts
to take, or cause to be taken, all actions, and to do, or cause to be done, and
to assist and cooperate with the other Parties in doing, all things that are
necessary or advisable to consummate and make effective the Merger and the other
transactions contemplated by this Agreement, including (i) the taking of all
commercially reasonable acts necessary to cause the conditions in Article 6 to
be satisfied and the Closing to occur within 75 days hereof, but in any event
not later than 150 days hereof, (ii) the obtaining of all necessary actions or
nonactions, waivers, consents and approvals from Governmental Entities and the
making of all necessary registrations, filings and notices and the taking of all
reasonable steps as may be necessary to obtain an approval or waiver from, or to
Page 33
avoid an action or proceeding by, any Governmental Entity, (iii) the obtaining
of all necessary consents, approvals or waivers from third parties and (iv) the
execution and delivery of any additional instruments necessary to consummate the
transactions contemplated by, and to fully carry out the purposes of, this
Agreement. Nothing set forth in this Section 5.3(a) will limit or affect actions
permitted to be taken pursuant to Section 4.2.
(b) The Company and its Board of Directors shall (i) take all
commercially reasonable actions necessary to ensure that no state takeover
statute or similar statute or regulation is or becomes applicable to the Merger,
this Agreement or any of the other transactions contemplated by this Agreement
and (ii) if any state takeover statute or similar statute or regulation becomes
applicable to the Merger, this Agreement or any other transaction contemplated
by this Agreement, take all commercially reasonable actions necessary to ensure
that the Merger and the other transactions contemplated by this Agreement may be
consummated as promptly as practicable on the terms contemplated by this
Agreement and otherwise to minimize the effect of such statute or regulation on
the Merger and the other transactions contemplated by this Agreement.
5.4 FEES AND EXPENSES
(a) All fees, costs and expenses incurred in connection with this
Agreement, the Merger and the other transactions contemplated hereby shall be
paid by the Party incurring such fees or expenses, whether or not the Merger is
consummated. For greater certainty, all fees, costs and expenses incurred in
connection with filing, printing and mailing the Proxy Statement shall be paid
by the Company.
(b) In the event the Parent terminates this Agreement pursuant to
Section 4.2(b) and 7.1(d), or the Company terminates this Agreement pursuant to
Section 4.2(b) and 7.1(f), then the Company shall forthwith pay to the Parent a
fee in the amount of $175,000, together with reasonable costs and expenses not
to exceed $100,000 (the "TERMINATION FEE") by wire transfer of same day funds to
an account designated by the Parent. The Company acknowledges that the
agreements contained in this Section 5.4(b) are an integral part of the
transactions contemplated by this Agreement, and that, without these agreements,
the Parent would not enter into this Agreement; accordingly, if the Company
fails to pay the amounts due pursuant to this Section 5.4(b) forthwith, and, in
order to obtain such payment, the Parent commences a suit that results in a
judgment against the Company for the amounts set forth in this Section 5.4(b),
the Company shall pay to the Parent interest on the amounts set forth in this
Section 5.4(b) at a rate per annum equal to 3%, compounded monthly.
5.5 PUBLIC ANNOUNCEMENTS
Unless otherwise required by applicable law, rule or regulation, the
Parent and Acquisition Co., on the one hand, and the Company, on the other hand,
shall, to the extent reasonably practicable, consult with each other before
issuing, and give each other a reasonable opportunity to review and comment
upon, any press release or other public statements with respect to this
Agreement, the Merger and the other transactions contemplated hereby. The
Page 34
Parties agree that the initial press release to be issued with respect to the
entering into of this Agreement shall be in a form mutually agreeable to the
Parties.
5.6 RIGHTS AGREEMENT
The Board of Directors of the Company shall take all further action (in
addition to that referred to in Section 3.1(c)) necessary or desirable
(including redeeming the Rights immediately prior to the Effective Time or
amending the Rights Agreement) as reasonably required by the Parent in order to
render the Rights inapplicable to the Merger and the other transactions
contemplated by this Agreement. If any "Distribution Date" occurs under the
Rights Agreement at any time during the period from the date of this Agreement
to the Effective Time, the Company and the Parent shall make such adjustment to
the Merger Consideration as the Company and the Parent shall mutually agree so
as to preserve the economic benefits that the Company and the Parent each
reasonably expected on the date of this Agreement to receive as a result of the
consummation of the Merger and the other transactions contemplated hereby.
Except as provided in this Section 5.6, the Company shall not (i) amend, modify
or waive any provision of the Rights Agreement or (ii) take any action to redeem
the Rights or render the Rights inapplicable to any transaction.
5.7 DIRECTOR'S AND OFFICER'S INSURANCE AND INDEMNIFICATION
(a) The Parent and Acquisition Co. agree that all rights to
indemnification and exculpation from liabilities for acts or omissions occurring
at or prior to the Effective Time now existing in favor of the current or former
directors or officers of the Company and its subsidiaries as provided in their
respective Certificates of Incorporation or By-laws (or comparable
organizational documents) and in indemnification agreements entered into between
each officer and director and the Company, shall be and are hereby assumed, as
of the Effective Time, by the Surviving Corporation without further action and
shall survive the Merger and shall continue in full force and effect in
accordance with their terms.
(b) The Parent shall, without any lapse in coverage, for six years after
the Effective Time, provide officers' and directors' liability insurance in
respect of acts or omissions occurring at or prior to the Effective Time
covering each such person currently covered by the Company's officers' and
directors' liability insurance policy on terms with respect to coverage and
amount no less favorable in any material respect than those of such policy in
effect on the date hereof, provided that in no event will the Parent be required
to pay more than 200% per annum of the last premium (annualized) paid by the
Company for such policy prior to the date hereof.
(c) The provisions of this Section 5.7 are intended to be for the
benefit of, and will be enforceable by, each indemnified party, his or her heirs
and his or her representatives, and are in addition to, and not in substitution
for, any other rights to indemnification or contribution that any such person
may have by contract or otherwise; provided however, that no director or officer
shall be entitled to any of the benefits provided under this Section 5.7 in the
event that, in a final, non appealable judgment, a court of competent
jurisdiction determines that
Page 35
such director or officer engaged in fraud or other willful misconduct in
negotiating, executing or delivering this Agreement.
ARTICLE 6.
CONDITIONS PRECEDENT
6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER
The respective obligation of each Party to effect the Merger is subject
to the satisfaction or waiver, on or prior to the Closing Date, of the following
conditions:
(a) STOCKHOLDER APPROVAL. Stockholder Approval shall have been obtained.
(b) ANTITRUST. Any waiting period (and any extension thereof) applicable
to the Merger under any applicable competition, merger control, antitrust or
similar law or regulation shall have been terminated or shall have expired.
(c) NO LEGAL RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other judgment, order or decree issued by any court of
competent jurisdiction or other legal restraint or prohibition (collectively,
"LEGAL RESTRAINTS") that has the effect of preventing the consummation of the
Merger shall be in effect.
6.2 CONDITIONS TO OBLIGATION OF THE PARENT AND ACQUISITION CO.
The obligations of the Parent and Acquisition Co. to effect the Merger
are further subject to the satisfaction or waiver, on or prior to the Closing
Date, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company contained herein that are qualified as to materiality or material
adverse effect shall be true and correct, and the representations and warranties
of the Company contained herein that are not so qualified shall be true and
correct in all material respects, in each case as of the date of this Agreement
and as of the Closing Date with the same effect as though made as of the Closing
Date, except that the accuracy of representations and warranties that by their
terms speak as of a specified date will be determined as of such date. In
addition, at the request of the Parent acting in its sole discretion prior to
the Closing, the Company shall cause certain officers and certain
employee-directors of the Company, as reasonably designated by the Parent, to
attend a meeting or participate in a telephonic conference call, with counsel to
the Company, at a time, date and place as mutually agreed by the Parties, for
the purpose of permitting the Parent, with its counsel, to confirm the
representations and warranties of the Company contained herein. The Parent shall
have received a certificate signed on behalf of the Company by the chief
executive officer or chief financial officer of the Company to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. The Company shall have
duly performed any covenants or obligations required to be performed by it under
this Agreement at or prior to the Closing Date in all material respects, and the
Parent shall have received a certificate signed on behalf of the Company by the
chief executive officer or the chief financial officer of the Company to such
effect.
Page 36
(c) CONSENTS. The Parent shall have received evidence, in form and
substance reasonably satisfactory to it, that the Company shall have obtained
all consents, approvals, authorizations, qualifications and orders of
Governmental Entities required in connection with this Agreement and the
transactions contemplated by this Agreement (including consents to assignments
of material contracts and material Intellectual Property) except for those the
failure of which to be obtained, individually or in the aggregate, would not
reasonably be expected to (i) restrain or prohibit the consummation of the
Merger or (ii) prohibit or limit in any material respect the ownership or
operation or effective control by the Parent of any portion of the business,
operations or assets of the Company and its subsidiaries.
(d) NO MATERIAL ADVERSE EFFECT. No event, change or effect, individually
or in the aggregate, with respect to the Company or its subsidiaries, has
occurred which would have or would reasonably be expected to have, a material
adverse effect on the Company.
(e) NO PENDING OR THREATENED LEGAL RESTRAINTS. No Legal Restraints that
would reasonably be expected to have the effect of preventing the consummation
of the Merger shall be pending or threatened in writing.
(f) APPRAISAL SHARES. No more than 10% of the outstanding shares of
Company Common Stock shall be Appraisal Shares.
(g) CONVERTIBLE SECURITIES. All outstanding Options and Warrants (other
than the Trust Warrants) shall have been duly exercised or terminated.
(h) NET TANGIBLE WORTH. The net tangible worth of the Company as of the
Closing Date based on the financial statements of the Company filed with the SEC
for the fiscal year ended June 30, 2001 shall be not less than $1,500,000
without giving effect to the transactions contemplated by this Agreement.
(i) OTHER DELIVERIES. The Company and others contemplated by Section
1.2(b), as the case may be, shall have delivered all of the required Closing
deliveries set forth in Section 1.2(b).
6.3 CONDITIONS TO OBLIGATION OF THE COMPANY
The obligation of the Company to effect the Merger is further subject to
the satisfaction or waiver on, or prior to the Closing Date, of the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Parent and Acquisition Co. contained herein that are qualified as to
materiality or material adverse effect shall be true and correct, and the
representations and warranties of the Parent and Acquisition Co. contained
herein that are not so qualified shall be true and correct in all material
respects, in each case as of the date of this Agreement and as of the Closing
Date with the same effect as though made as of the Closing Date, except that the
accuracy of representations and warranties that by their terms speak as of a
specified date will be determined as of such date. The Company shall have
received a certificate signed on behalf of the Parent by the chief executive
officer or chief financial officer of the Parent to such effect.
Page 37
(b) PERFORMANCE OF OBLIGATIONS OF PARENT AND ACQUISITION CO. The Parent
and Acquisition Co. shall have duly performed any covenants or obligations
required to be performed by them under this Agreement at or prior to the Closing
Date in all material respects, and the Company shall have received a certificate
signed on behalf of the Parent by the chief executive officer or chief financial
officer of the Parent to such effect.
(c) CONSENTS. The Parent shall have obtained all consents, approvals,
authorizations, qualifications and orders of Governmental Entities required in
connection with this Agreement and the transactions contemplated by this
Agreement except for those the failure of which to be obtained, individually or
in the aggregate, would not reasonably be expected to restrain or prohibit the
consummation of the Merger.
ARTICLE 7.
TERMINATION, AMENDMENT AND WAIVER
7.1 TERMINATION
This Agreement may be terminated, and the Merger contemplated hereby may
be abandoned, at any time prior to the Effective Time, whether before or after
Stockholder Approval has been obtained and notwithstanding adoption of this
Agreement by the stockholder of Acquisition Co.:
(a) by mutual written consent of the Parent and the Company;
(b) by either the Parent or the Company:
(i) if the Merger shall not have been consummated by December
31, 2001; provided, however, if on December 31, 2001, the Parent
provides evidence to the Company demonstrating to the Company's
reasonable satisfaction that the Parent has obtained legally binding
financial commitments from third parties, including, without limitation,
individual investors and/or banks, in an amount, in the aggregate, of at
least Five Million U.S. dollars (US$5,000,000) which sums are to be used
to consummate the Merger and the transactions contemplated hereby,
including payment in full for all the shares of Company Common Stock
validly surrendered pursuant to Article 2 hereof, then neither the
Parent nor the Company shall be permitted to terminate this Agreement
pursuant to this Section 7.1(b)(i) prior to February 28, 2002;
(ii) if any Legal Restraint set forth in Section 6.1(c) shall be
in effect and shall have become final and nonappealable; or
(iii) if Stockholder Approval shall not have been obtained at
the Stockholders Meeting duly convened therefor;
provided that no Party may terminate this Agreement pursuant to this
Section 7.1(b) if such Party's failure to fulfill any of its obligations
under this Agreement
Page 38
shall have been a principal reason that the Effective Time shall not have
occurred on or before said date;
(c) by the Parent (i) if the Company shall have breached or failed to
perform in any material respect any of its representations, warranties,
covenants or other agreements set forth in this Agreement or if any
representations or warranties of the Company shall have become untrue in any
material respect, which breach or failure to perform or untrue representation or
warranty (A) would give rise to the failure of a condition set forth in Sections
6.2(a) or 6.2(b) and (B) cannot be or has not been cured within 20 days after
the Parent's giving written notice to the Company of such breach (a "COMPANY
MATERIAL BREACH") (provided that the Parent is not then in Parent Material
Breach (as defined in Section 7.1(e)) of any representation, warranty, covenant
or other agreement set forth in this Agreement);
(d) by the Parent if (i) the Company fails to comply with Section 4.2(a)
or (ii) the Board of Directors of the Company takes any of the actions
contemplated by Section 4.2(b) or otherwise withdraws its approval or
recommendation of the Merger or this Agreement or approves or recommends any
Takeover Proposal or resolves to take any of the foregoing actions;
(e) by the Company, if the Parent or Acquisition Co. shall have breached
or failed to perform in any material respect any of its representations,
warranties, covenants or other agreements set forth in this Agreement or if any
representations or warranties of the Parent or Acquisition Co. shall have become
untrue in any material respect, which breach or failure to perform (A) would
give rise to the failure of a condition set forth in Sections 6.3(a) or 6.3(b)
and (B) cannot be or has not been cured within 20 days after the Company's
giving written notice to the Parent of such breach (a "PARENT MATERIAL BREACH")
(provided that the Company is not then in Company Material Breach of any
representation, warranty, covenant or other agreement set forth in this
Agreement); or
(f) by the Company in accordance with, and subject to the terms of,
Section 4.2(b).
7.2 EFFECT OF TERMINATION
In the event of termination of this Agreement by either the Company or
the Parent as provided in Section 7.1, this Agreement shall forthwith become
void and have no effect, without any liability or obligation on the part of the
Parent, Acquisition Co. or the Company, other than Sections 3.1(u) and 5.4(b),
this Section 7.2 and Article 8; provided, HOWEVER, that no such termination
shall relieve any Party from any liability or damages resulting from a breach or
failure to perform by a Party of any of its representations, warranties,
covenants or other agreements set forth in this Agreement; and PROVIDED, FURTHER
that the payment by the Company of the Termination Fee pursuant to Section
5.4(b) shall constitute the exclusive remedy of the Parent in the event the
Company accepts a Takeover Proposal or takes any other of the actions
contemplated in Section 4.2(b) hereof, without breaching or failing to perform,
in any material respect, any of the representations, warranties or other
agreements set forth in this Agreement.
Page 39
7.3 AMENDMENT
This Agreement may be amended by the Parties at any time before or after
Stockholder Approval and whether before or after adoption of this Agreement by
the stockholder of Acquisition Co.; PROVIDED, HOWEVER, that after any such
approval, there shall not be made any amendment that by law, rule or regulation
requires further approval by the stockholders without the further approval of
such stockholders. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the Parties.
7.4 EXTENSION; WAIVER
At any time prior to the Effective Time, a Party may (i) extend the time
for the performance of any of the obligations or other acts of the other
Parties, (ii) waive any inaccuracies in the representations and warranties of
the other Parties contained in this Agreement or in any document delivered
pursuant to this Agreement or (iii) subject to the proviso of Section 7.3, waive
compliance by the other Party with any of the agreements or conditions set forth
in this Agreement. Any agreement on the part of a Party to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such Party. Any waiver or failure to insist upon strict compliance
with any obligation, covenant, agreement, provision, term or condition of this
Agreement shall not operate as a waiver of, or estoppel with respect to, any
subsequent or other failure to comply. The failure or delay of any Party to
assert any of its rights under this Agreement or otherwise shall not constitute
a waiver of such rights.
ARTICLE 8.
GENERAL PROVISIONS
8.1 NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES
None of the representations and warranties in this Agreement or in any
certificate or instrument delivered pursuant to this Agreement shall survive the
Effective Time. This Section 8.1 shall not limit any covenant or agreement of
the Parties which by its express terms contemplates performance, in whole or in
part, after the Effective Time.
8.2 NOTICES
All notices, requests, claims, demands and other communications under
this Agreement shall be in writing and shall be deemed given if delivered
personally, telecopied (which is confirmed) or sent by overnight courier
(providing proof of delivery) to the Parties at the following addresses (or at
such other address for a Party as shall be specified by like notice):
(a) if to the Parent or Acquisition Co., to:
Page 40
SimEx Inc.
000 Xxxx Xxxxxx Xxxx, Xxxxx 000
Xxxxxxx, Xxxxxxx X0X 0X0
Telecopy No.: (000) 000-0000
Attention:. Xxxxxxx X. Xxxxxxx
with a copy to:
Torys
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telecopy No.: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxxxxxx, Esq.
(b) if to the Company, to:
Iwerks Entertainment, Inc.
0000 Xxxx Xxxxxxx Xxxxxx
Xxxxxxx, Xxxxxxxxxx 00000-0000
Telecopy No.: (000) 000-0000
Attention: Xxxx Xxxxx
with a copy to:
Akin, Gump, Strauss, Xxxxx & Xxxx LLP
0000 Xxxxxxx Xxxx Xxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Telecopy No.: (000) 000-0000
Attention: Xxxxx X. Xxxxxx, Esq.
8.3 DEFINITIONS
(a) For purposes of this Agreement:
An "AFFILIATE" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first person.
"MATERIAL ADVERSE EFFECT" means, when used in connection with the
Company or the Parent, as the case may be, any state of facts, change,
development, event, effect, condition or occurrence that would reasonably be
expected to be material and adverse to the business, assets, properties,
condition (financial or otherwise) or results of operations of such Party and
its subsidiaries, taken as a whole, or to prevent or materially impede or delay
the consummation of the Merger or the other transactions contemplated by this
Agreement, other than, in any case, any state of facts, change, development,
event, effect, condition or occurrence
Page 41
resulting from (i) changes in the United States economy or the United States
securities markets in general, (ii) changes in the industries in which the
Company or the Parent, as the case may be, operates and not specifically
relating to the Company or the Parent, as the case may be or (iii) this
Agreement or the transactions contemplated hereby or any public announcement of
this Agreement or the Merger.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of business,
consistent with past practice.
"PERSON" means an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity.
"SUBSIDIARY" of any person means another person, an amount of the voting
securities, other voting ownership or voting partnership interests of which is
sufficient to elect at least a majority of its Board of Directors or other
governing body (or, if there are no such voting interests, 50% or more of the
equity interests of which) is owned directly or indirectly by such first person.
"KNOWLEDGE OF THE COMPANY" means the actual knowledge of the
non-employee directors and the knowledge of the executive officers and
employee-directors of the Company or any of its subsidiaries after reasonable
inquiry and investigation.
(b) The following capitalized terms are defined in the following
Sections of this Agreement:
TERM SECTION
---- -------
0001 Stock Plan 3.1(c)(ii)(E)
1998 Non-Employee 3.1(c)(ii)(D)
Directors Stock Plan
1987 Stock Plan 3.1(c)(ii)(A)
1993 Stock Plan 3.1(c)(ii)(B)
1994 Stock Plan 3.1(c)(ii)(C)
Acquisition Co. First Paragraph
Appraisal Shares 2.1(d)
Benefit Plans 3.1(l)
Board Approval 3.1(d)(iii)
Certificates 2.2(b)
Certificate of Merger 1.3
Closing 1.2(a)
Closing Date 1.2(a)
Code 3.1(l)(ii)
Company First Paragraph
Company Common Stock 2.1(a)
Company Material Breach 7.1(c)
Company Preferred Stock 3.1(c)(i)
Company SEC Documents 3.1(e)
Page 42
TERM SECTION
---- -------
Confidentiality Agreement 5.2
Contract 3.1(d)(iv)(B)
Delaware Secretary of State 1.2(b)(ii)(A)
DGCL Recitals
Disclosure Letter 3.1(b)
Effective Time 1.3
Environmental Claims 3.1(q)(viii)(A)
Environmental Laws 3.1(q)(viii)(B)
Environmental Permits 3.1(q)(viii)(C)
ERISA 3.1(l)
Exchange Act 3.1(d)(v)
GAAP 3.1(e)
Government Entity 3.1(d)(v)
Hazardous Materials 3.1(q)(viii)(D)
Intellectual Property 3.1(o)(iv)
Legal Restraints 6.1(c)
Liens 3.1(b)
March Financial Statements 3.1(e)
Merger Recitals
Merger Consideration 2.1(c)
Options 3.1(c)(ii)
Parent First Paragraph
Parent Material Breach 7.1(e)
Parties 1.2
Patents 3.1(o)(iv)(A)
Paying Agent 2.2(a)
Permits 3.1(h)
Proxy Statement 3.1(d)(v)
Release 3.1(q)(viii)(E)
Right 3.1(c)(iv)
Rights Agreement 3.1(c)(iv)
SEC 3.1(d)(v)(A)
SEC Financial Statements 3.1(e)
Section 262 2.1(d)(ii)
Securities Act 3.1(e)
SimEx Note 3.2(e)
Software 3.1(p)
Stockholder Approval 3.1(d)(ii)
Stockholders Meeting 5.1(b)
Surviving Corporation 1.1
Takeover Proposal 4.2
Taxes 3.1(m)(i)
Tax Returns 3.1(m)(i)
Termination Fee 5.4(b)
Page 43
TERM SECTION
---- -------
Trust Warrants 2.1(e)
Warrants 3.1(c)(iii)
8.4 INTERPRETATION
When a reference is made in this Agreement to an Article or Section or
the Disclosure Letter, such reference shall be to an Article or Section of, or
the Disclosure Letter to, this Agreement unless otherwise indicated. The table
of contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation". The term "or" has, except where otherwise indicated, the inclusive
meaning represented by the phrase "and/or". The words "hereof", "herein" and
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement. All terms defined in this Agreement shall have the defined meanings
when used in any certificate or other document made or delivered pursuant hereto
unless otherwise defined therein. The definitions contained in this Agreement
are applicable to the singular as well as the plural forms of such terms and to
the masculine as well as to the feminine and neuter genders of such term. Any
agreement, instrument or statute defined or referred to herein or in any
agreement or instrument that is referred to herein means such agreement,
instrument or statute as from time to time amended, modified or supplemented,
including (in the case of agreements or instruments) by waiver or consent and
(in the case of statutes) by succession of comparable successor statutes and
references to all attachments thereto and instruments incorporated therein.
References to a person are also to its permitted successors and assigns.
8.5 COUNTERPARTS
This Agreement may be executed by facsimile signature and in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the Parties and delivered to the other Parties.
8.6 ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES
This Agreement (including the documents and instruments referred to
herein), the Confidentiality Agreement and that certain Confidentiality
Agreement dated as of December 13, 2000 between the Company and the Parent (i)
constitute the entire agreement, and supersede all prior agreements and
understandings, both written and oral, among the Parties with respect to the
subject matter of this Agreement and (ii) except for the provisions of Article
2, and Sections 3.1(u) and 5.7, are not intended to confer upon any person other
than the Parties any rights or remedies.
Page 44
8.7 GOVERNING LAW
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Delaware, regardless of the laws that might otherwise
govern under applicable principles of conflict of laws thereof.
8.8 ASSIGNMENT
Neither this Agreement nor any of the rights, interests or obligations
under this Agreement shall be assigned, in whole or in part, by operation of law
or otherwise by any Party without the prior written consent of the other
Parties. Any assignment in violation of the preceding sentence shall be void.
Subject to the preceding sentence, this Agreement will be binding upon, inure to
the benefit of, and be enforceable by, the Parties and their respective
successors and assigns.
8.9 CONSENT TO JURISDICTION
Each of the Parties hereto irrevocably and unconditionally submits to
the exclusive jurisdiction of (i) any Delaware State court and (ii) any Federal
court of the United States of America sitting in the State of Delaware, for the
purposes of any suit, action or other proceeding arising out of this Agreement
or any transaction contemplated hereby (and each agrees that no such action,
suit or proceeding relating to this Agreement shall be brought by it or any of
its affiliates except in such courts). Each of the Parties further agrees that,
to the fullest extent permitted by applicable law, service of any process,
summons, notice or document by U.S. registered mail to such person's respective
address set forth above shall be effective service of process for any action,
suit or proceeding in Delaware with respect to any matters to which it has
submitted to jurisdiction as set forth above in the immediately preceding
sentence. Each of the Parties irrevocably and unconditionally waives (and agrees
not to plead or claim) any objection to the laying of venue of any action, suit
or proceeding arising out of this Agreement or the transactions contemplated
hereby in (i) any Delaware State court or (ii) any Federal court of the United
State of America sitting in the State of Delaware, or that any such action, suit
or proceeding brought in any such court has been brought in an inconvenient
forum.
8.10 WAIVER OF JURY TRIAL
Each Party hereby waives, to the fullest extent permitted by applicable
law, any right it may have to a trial by jury in respect of any suit, action or
other proceeding directly or indirectly arising out of, under or in connection
with this Agreement. Each Party (i) certifies that no representative, agent or
attorney of any other Party has represented, expressly or otherwise, that such
Party would not, in the event of any action, suit or proceeding, seek to enforce
the foregoing waiver and (ii) acknowledges that it and the other Parties have
been induced to enter into this Agreement, by, among other things, the mutual
waiver and certifications in this Section 8.10.
Page 45
8.11 ATTORNEY'S FEES
In any suit or proceeding arising out of this Agreement or to interpret
or enforce any provision of this Agreement, the prevailing Party shall be
entitled to all reasonable out-of-pocket expenses and reasonable attorney's fees
incurred by such Party in connection with such suit or proceeding.
8.12 ENFORCEMENT
The Parties agree that irreparable damage would occur in the event that
any of the provisions of this Agreement were not performed in accordance with
their specific terms or were otherwise breached. It is accordingly agreed that
the Parties shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
of this Agreement, this being in addition to any other remedy in any Delaware
State court or any Federal court of the United States of America sitting in the
State of Delaware to which they are entitled at law or in equity.
8.13 SEVERABILITY
If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to either
Party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the Parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
Parties as closely as possible in a mutually acceptable manner in order that the
transactions contemplated hereby be consummated as originally contemplated to
the greatest extent possible.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
Page 46
IN WITNESS WHEREOF, the Parent, Acquisition Co. and the Company have
caused this Agreement to be signed by their respective officers thereunto duly
authorized, all as of the date first written above.
SIMEX INC.
By: /S/ XXXXXXX XXXXXXX
-------------------------------
Name: Xxxxxxx Xxxxxxx
Title: Chief Executive Officer
SIMEX ACQUISITION CO.
By: /S/ XXXXXXX XXXXXXX
-------------------------------
Name: Xxxxxxx Xxxxxxx
Title: Chief Executive Officer
IWERKS ENTERTAINMENT, INC.
By: /S/ XXXX X. XXXXX
-------------------------------
Name: Xxxx X. Xxxxx
Title: Chief Executive Officer
Page 47
